A F&O ban is a ban levied on the 'Futures and Options' segment of the stocks when the stocks become extremely speculative and risky. Stocks of three companies ie Delta Corp, Indiabulls Housing Finance and India Cements have been put under a 'F&O ban' from October 18, 2022, by the National Stock Exchange (NSE) since the trading limit crossed certain criteria.
What is F&O ban? You may have heard of the term 'F&O ban' in the news when certain popular stocks fell under this particular category. F&O bans generally create a certain sense of helplessness among traders because once 'F&O bans' are imposed, traders cannot trade in Futures and Options of these stocks for the next few days. Though F&O traders feel the pinch of this ban heavily, those who trade in normal equity shares of these companies, do not feel the burden in any way.
Why is there an F&O ban? This bans traders from trading in 'Futures and Options' of particularly speculative stocks and attempts to prevent excessive speculative activity in those stocks.
How is it triggered? The stock exchange imposes an F&O ban when the aggregate open interest of a stock crosses 95% of the market-wide position limit (MWPL). Here's what it means:
What happens when the ban is imposed:
Why is this distressing for investors? When stocks are imposed under an F&O ban, it can cause huge losses to traders if they are caught unawares. Traders have to then square off their positions at a price that could be unfavorable for them. Though the NSE provides an alert facility on its trading system that allows traders to know when the trading levels exceed the 60% mark, traders still have to be alert after they take positions in such speculative stocks.