You have worked out that you are willing to lose ₹12,000 on an idea, and that your stop sits 4% below entry. In the cash market that arithmetic gives you a position of ₹3 lakh and you buy whatever number of shares that comes to. In derivatives the arithmetic does not survive contact with the rules: the exchange has already decided the smallest quantity you may trade, and that quantity may put far more at risk than you intended. Nothing about the chart tells you this. The contract specification does.
The retail vendor will sell you a kilo. The wholesale mandi sells by the sack, and it does not matter that you only want four kilos — the sack is the unit. If a sack is more than you can store or afford, the mandi is simply not a market you can use for this purchase, however good the price looks.
The lot is the sack. Derivatives are a wholesale market with a minimum ticket set by regulation, and if one lot represents more risk than your capital can carry, the correct conclusion is that the instrument is not available to you at that size — not that you should stretch.
Why lots exist and how they change
- Contracts trade in fixed lots — 500 shares, 250 shares, 1,200 shares — set by the exchange, never by you. There are no fractions of a lot.
- The lot is chosen so the contract value falls inside a prescribed band. SEBI sets a minimum contract value; the exchange then works backwards from the share price to a lot size that lands inside it, and revises the lot as the price drifts.
- That minimum has been raised. The floor for index derivatives, set at ₹5 lakh in 2015, was raised sharply in the framework that took effect from late 2024, expressly to make the segment less accessible to very small accounts. The current figures are in the SEBI circular and the exchange’s contract specification.
- Lot sizes change after corporate actions. A bonus issue or a stock split changes the number of shares in a lot so the contract value is preserved. If you are comparing today’s contract to a historical series, this is a source of quiet error.
- A stock can leave the F&O segment entirely. Names are added and removed against eligibility criteria based on liquidity and market capitalisation. Exclusion is announced in advance and existing contracts run to expiry.
What you actually post
The margin on a derivatives position is not a down payment on a purchase and it is not the maximum you can lose. It is collateral held by the clearing corporation against the loss the position could plausibly generate before it can be closed. It comes in layers, all collected upfront.
| Layer | What it covers | Roughly |
|---|---|---|
| SPAN margin | The worst single-day loss across a grid of simulated price and volatility scenarios | The largest component |
| Exposure margin | An additional buffer above SPAN, set as a percentage of contract value or a multiple of volatility | A further slice on top |
| Additional or ad-hoc margin | Levied by the exchange on specific stocks under stress or unusual concentration | Imposed with little notice |
| Delivery margin | Collected in steps over the final four sessions on positions heading for physical settlement | Rises steeply into expiry |
| Mark to market | Yesterday’s loss, settled in cash every single day | Paid, not deposited |
- Contract value
- Price of the underlying × lot size
- Total initial margin
- SPAN plus exposure plus any additional margin, all upfront
Example: Contract value ₹6,20,000 against ₹1,05,400 of margin is 5.9 times. Every 1% move in the stock is therefore a 5.9% move in the capital you have posted.
What this means for how you trade
- 1Size from contract value, not from margin
Your risk is lot size × the distance to your stop. Compute that first. The margin figure is a funding question and belongs in a separate calculation.
- 2Keep free cash beyond the initial margin
Mark to market is settled daily in cash and additional margin can be imposed without warning. A position funded to the exact rupee of initial margin is one ordinary session from a forced closure.
- 3Check the lot size before you form a view, not after
It takes a moment on the exchange website and it decides whether the idea is tradable for you at all. Doing this last is how people end up carrying twice the risk they planned.
- 4Remember the segment interacts with itself
The same position is subject to the ban period, to delivery margins in expiry week, and to ad-hoc margin in a volatile stretch. These arrive together far more often than they arrive alone.
A trader posts ₹1,05,400 of margin for one lot of a stock futures contract worth ₹6,20,000, and says his maximum risk is ₹1,05,400. What is wrong with that?
Thok mandi mein chawal bori mein milta hai. Aapko paanch kilo chahiye toh bhi poori bori leni padegi — aur usi hisaab se paisa. Derivatives mein bhi lot fix hai aur margin usi lot pe lagta hai, isliye sabse chhota sauda bhi aksar lakhon ka ho jaata hai. Position ka size aapne nahi, exchange ne tay kiya hai.
- The lot size is set by the exchange to keep contract value inside a regulated band.
- If one lot risks more than you can lose, the position cannot be made smaller.
- Margin is SPAN plus exposure plus any additional levy, all collected upfront.
- Effective leverage is contract value divided by margin — measure loss against the former.
- Rising volatility raises margin on exactly the day it produces the loss.
Mark it done to track your progress through the curriculum.
Common questions
Short, direct answers to what people ask about this topic.
- lot size meaning in f&o
- Lot size is the fixed number of shares in one derivatives contract — 500, 250 or 1,200 shares, for instance — set by the exchange rather than by the trader, and there are no fractions of a lot. The exchange works backwards from the share price to a lot size that keeps contract value inside the band SEBI prescribes, and revises it as the price drifts. Lot sizes also change after a bonus issue or a split so that contract value is preserved, which is a quiet source of error when comparing a contract with a historical series.
- can I buy less than one lot in futures
- No. Derivatives trade in whole lots only, so if one lot represents more risk than your capital can carry, the position cannot simply be made smaller. Sizing in this segment therefore works as a filter rather than as a calculation: lot size multiplied by the distance to your stop is the rupee risk, and it is fixed before the order is placed.
- what is span margin and exposure margin
- SPAN margin covers the worst single-day loss on your position across a grid of simulated price and volatility scenarios, and it is usually the largest component. Exposure margin is an additional buffer levied on top of SPAN rather than instead of it, set as a percentage of contract value or a multiple of volatility. Both are collected upfront, and the exchange can impose further ad-hoc margin on specific stocks under stress with little notice.
- effective leverage on a futures position is calculated as
- Contract value divided by total initial margin, where contract value is the price of the underlying multiplied by the lot size, and initial margin is SPAN plus exposure plus any additional levy. A ₹6,20,000 contract carried on ₹1,05,400 of margin is about 5.9 times, which means every 1% move in the stock is a 5.9% move in the capital posted. Loss should always be measured against contract value, never against margin.
- what is the peak margin rule
- The peak margin rule requires brokers to collect the full prescribed upfront margin from the client, verified against several randomly timed intraday snapshots of the position rather than against the end-of-day figure, with penalties for any shortfall. It has applied in full since September 2021, and it is the reason the large intraday leverage Indian brokers once advertised has largely disappeared.