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Today we will discuss Execution Range and its effect on your option trading. Currently, option trading has been contributing up to 80% of total exchange volume in NSE. But the liquidity is limited to present month contracts. With low trading activity in most contracts, there is a higher probability of higher impact cost.
Impact cost is the difference between ordered price and executed price.
To save traders from higher impact cost, the exchange has prescribed execution range for option contracts. Now let us see how it protects the interest of traders.
But first the definition,Execution range is the price range on both sides of the current price of a contract.
It refers to a range in which you can place orders for the various option contracts. Order placed beyond this range will be rejected.
Price for each contract shall be calculated as follows,
According to NSE the execution range on both sides of price would be:
Now let’s explain it with a simple example
Consider the price of a deep ITM (in the money) Nifty option is 100. Now check the below Order Window.
Points to note:
Execution range is available only for Futures and Options trading in NSE. It is applicable for near month and far month contracts. All orders above or below this range will be cancelled, so always check your market orders in illiquid contracts.
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