In our continuous effort to provide you with a seamless and secure trading experience, we want to bring to your attention some crucial updates and reminders regarding the Limit Price Protection (LPP) mechanisms set by the exchanges. Understanding these mechanisms is essential to ensure that your orders are placed successfully and within the acceptable price ranges defined by the exchange.
What is Limit Price Protection (LPP)?
Limit Price Protection (LPP) is a pre-trade risk control mechanism designed to prevent erroneous order placements that could disrupt normal trading activities. The LPP mechanism ensures that Limit and Stop Loss-Limit orders are placed within a specified price range around the reference price to maintain market stability and protect traders from significant losses.
Key Updates from the Circulars
According to the latest circulars from the National Stock Exchange (NSE) dated January 25, 2023 for Index and Stock Options Contract and February 3, 2023 for Index and Stock Futures Contract and Bombay Stock Exchange (BSE) April 5, 2024 for Options and Futures Contract the LPP mechanisms have been updated to extend to stock options, index futures, and stock futures. Here are the key points:
NSE LPP Range for Index and Stock Options Contract
| Reference Price (in Rs) | LPP Range |
| ≤ 50 | ± 20 |
| > 50 | ± 40% of the reference price |
NSE LPP Range for Index and Stock Futures Contract
| Instrument | LPP Range |
| Index and Stock Futures Contract | ± 3% of the reference price |
BSE LPP Range for Index and Stock Futures Contract
Options Contracts:
- LPP Range: 60% of the reference price (minimum LPP value of Rs 30)
Futures Contracts:
- LPP Range: 3% of the reference price (minimum LPP value of Rs 1.50)
Illustrations on LPP Mechanism
To ensure your orders are within the LPP range and are successfully executed, please take note of the following scenarios:
Example for NSE Options contract:
Scenario:
- You are trading a Stock Option with a Reference Price of ₹60.
Calculation:
- According to the circular, for Stock Options with a Reference Price > ₹50, the LPP range is ±40% of the Reference Price.
- Reference Price = ₹60
- LPP Range = 40% of ₹60 = 0.4 * 60 = ₹24
LPP Limits:
- Lower Limit for Sell Orders: ₹60 – ₹24 = ₹36
- Upper Limit for Buy Orders: ₹60 + ₹24 = ₹84
Application:
- Buy Orders:
- If a buy order is placed with a limit price > ₹84, it will be rejected.
- For example, a buy order with a limit price of ₹85 will be rejected.
- Error message: Order price is beyond the Limit Price Protection range defined by the exchange. Please reduce the stop loss trigger price below Rs. 84
- Sell Orders:
- If a sell order is placed with a limit price < ₹36, it will be rejected.
- For example, a sell order with limit price at ₹35 will be automatically rejected.
- Error message: Order price is beyond the Limit Price Protection range defined by the exchange. Please increase the stop loss trigger price above Rs.36
Example for NSE Futures contract:
Scenario:
- You are trading an Index Future with a Reference Price of ₹1000.
Calculation:
- According to the circular, for Index Futures (FUTIDX), the LPP range is ±3% of the Reference Price.
- Reference Price = ₹1000
- LPP Range = 3% of ₹1000 = 0.03 * 1000 = ₹30
LPP Limits:
- Lower Limit for Sell Orders: ₹1000 – ₹30 = ₹970
- Upper Limit for Buy Orders: ₹1000 + ₹30 = ₹1030
Application:
- Buy Orders:
- If a buy order is placed with a limit price > ₹1030, it will be rejected.
- For example, a buy order with a limit price of ₹1031 will be rejected.
- Error message: Order price is beyond the Limit Price Protection range defined by the exchange. Please reduce the stop loss trigger price below Rs. 1030
- Sell Orders:
- If a sell order is placed with a limit price < ₹970, it will be rejected.
- For example, a sell order with limit price at ₹969 will be automatically rejected.
- Error message: Order price is beyond the Limit Price Protection range defined by the exchange. Please increase the stop loss trigger price above Rs.970
Conclusion
We urge all our customers to carefully review and adjust their order prices to comply with the LPP mechanisms defined by the exchanges. Trading responsibly and within the set limits not only helps in executing your orders smoothly but also contributes to the overall stability and integrity of the market.
For any queries or further assistance, please feel free to reach out to our support team.
Happy Trading!
