You might have heard your broker repeating one line that no new positions are available as the stock is on the F&O ban list. F&O stands for future and options. A stock market is a place where various new investors wish to try their fortune. But for this, you need to learn in-depth about what it is and how it works.
You might have read about a particular stock entering this list in the newspaper headlines. Have you ever questioned what is F&O ban list and how it impacts the stock? Stay tuned to explore more about it.
What Is The F&O (Future and Options) Ban?
The F&O ban list occurs when you trade in the derivative market. Under any situation, if the stock exchange feels that the trading process is harmed and it may negatively affect the traders then the band list occurs on a selected stock.
You may question whether this happens on a particular stock or the entire derivative market. The answer to your question is that the F & O ban list occurs only on a particular stock and not on the entire market.
Why Are F&O Bans Placed By Stock Exchanges?
When the price of a particular stock rises to a great extent and crosses a particular value by the stock exchange then the stock exchange puts it under the tag of the F&O ban list.
If a stock is on the ban list then it means that the traders won’t be able to open any kind of fresh position on that particular stock in the derivatives market. They can assign new and fresh roles only when the particular stock is ban free. The only reason for putting a particular stock on the F&O ban list is to safeguard traders and prevent any kind of excessive price hike.
The stock exchange permits the particular stock in the derivatives market only if the traders resign their positions or square up their positions.
If the traders take new positions or trades under the restricted period of the F&O ban list then they have to pay the penalty which is one percent of the value when there is an increase in position. The traders are permitted to sell as many lots as they want for the selected stock. Traders do not face any kind of problem when they are trading in the market index.
If a trader performs trading activity in the future and options then they come under the trading limit which is also known as the market-wide positions limit (MWPL).
Read Also: What are operators in the stock market?
Impact Of F&O Ban On Share Price
The stock exchange bans certain stocks to prevent an upsurge in the price of a respective stock in the derivative market. Such undue hikes if not regulated can lead to instability as well as can endanger the trader. By putting it on the F&O ban list they control the volatility of the stock.
We already know tremendous speculation can lead to fluctuation in the trading market and be risky for the investor. When a particular stock is put into the F&O ban list the price of the stock goes down.
One major reason behind the fall in the price of the stock is that investors who had opened any kind of position in the stock have to square off their position. It is already discussed in the above article that they have to pay the penalty if they do not square off their positions.
As stock investors have to square off their position they suffer to a great extent as the stocks are put into an F&O ban period. Many investors are not aware of the ban period. The only option that they have is to square off their positions and suffer the loss.
To avoid such a situation investors need to be careful about speculations in the trading market as well as be aware if a stock is entering into the ban period. Excessive speculation on a particular stock especially when it influences the free float of the stock can endanger small investors to a great extent.
Many investors can try to exploit the liquidity of the stock. Thus, traders need to be alert and pay attention to small aspects when they are trading in the future and options.
Conclusion:
While trading in the future and options you have to pay attention even towards the finest aspects and be cautious in every step. Make sure you research well before investing in a particular stock. This will assist to a great extent. In this article, we understood the impact of the F&O ban on a particular share price. We have also explained the F&O ban and why a particular stock is placed under the F&O ban by the stock exchanges.
