This guide sets out each rule with its start date and what it changes for a trader: contract sizes and lot sizes, expiry days, margins on expiry day, upfront premium, position limits, the closing auction, STT, and the full set of SEBI rules for algo trading by retail traders, including Algo IDs, static IPs and the 10 orders a second threshold.
SEBI rules for option trading at a glance
| Rule | In force from | What it means for you |
|---|---|---|
| Minimum contract size of ₹15 lakh for index derivatives | 20 November 2024 | Larger lots: Nifty 65, Bank Nifty 30 from January 2026 |
| One weekly expiry per exchange | 20 November 2024 | Weekly options only on Nifty (NSE) and Sensex (BSE) |
| Extra 2% exposure margin on short index options on expiry day | 20 November 2024 | More margin to sell options on expiry day |
| Option premium collected upfront | 1 February 2025 | Buyers pay the full premium before the order |
| No calendar spread benefit on expiry day | 1 February 2025 | Expiring legs get no margin offset against other expiries |
| Intraday monitoring of index position limits | 1 April 2025 | Exchanges check large positions several times a day |
| Expiry days fixed: Tuesday on NSE, Thursday on BSE | 1 September 2025 | All NSE equity derivatives expire on Tuesdays |
| Retail algo trading framework | Phased from 1 October 2025; all brokers from 1 April 2026 | Every algo order carries an Algo ID through a registered broker |
| Higher STT on futures and options | 1 April 2026 | 0.05% on futures, 0.15% on option premium |
| Closing auction for F&O stocks | 3 August 2026 | Stocks in F&O close by auction; F&O trades until 3:40 pm |
Why SEBI tightened the rules
SEBI's studies of individual traders drove the changes. Its September 2024 study found that 93% of individual F&O traders lost money over the three years to FY24. Its study of FY26 found that 87.7% of individual traders lost money, with net losses of ₹91,685 crore, most of it in index options. The same studies found that almost all the gross profits of proprietary traders and foreign investors in derivatives came from algorithmic trading. The rules aim to slow speculative expiry-day trading, make contracts large enough that they suit traders with capital to match, and bring retail algos under the same controls as institutional ones. The retail F&O profitability report sets out the figures.
Contract size and lot sizes
An index derivative contract must be worth at least ₹15 lakh when it is introduced, and exchanges review lot sizes to keep contracts in a band of about ₹15 lakh to ₹20 lakh as prices move. Before November 2024 the minimum was ₹5 lakh to ₹10 lakh.
| Index | Lot size from the January 2026 series | Contract value at |
|---|---|---|
| Nifty 50 | 65 | ₹16.25 lakh at 25,000 |
| Bank Nifty | 30 | ₹16.80 lakh at 56,000 |
| FinNifty | 60 | Depends on the index level |
| Nifty Midcap Select | 120 | Depends on the index level |
A larger lot raises the rupee value of every point: one Nifty lot gains or loses ₹65 a point. It also raises the premium a buyer pays and the margin a seller needs. Open positions keep their lot size until they expire; new contracts carry the new size.
Weekly and monthly expiries
Each exchange may offer weekly options on one benchmark index only. NSE kept Nifty 50 weeklies and BSE kept Sensex weeklies. Bank Nifty, FinNifty, Midcap Select and other indices now have monthly expiries only. Since 1 September 2025, all NSE equity derivatives expire on Tuesdays and all BSE equity derivatives on Thursdays: Nifty weekly options every Tuesday, and monthly contracts on the last Tuesday of the month. When the expiry day is a holiday, contracts expire on the trading day before. The Nifty expiry date calendar lists every date.
The change ended the old pattern of an index expiring on almost every day of the week. Strategies built around Bank Nifty's weekly expiry now trade the monthly contract or move to Nifty.
Margin rules for options
- Upfront premium. Since 1 February 2025, brokers must collect the full premium from option buyers before the order. You cannot buy options with margin from other positions.
- Expiry-day margin. Since 20 November 2024, short index options expiring that day carry an extra 2% exposure margin on the contract value. On one Nifty lot at 25,000 that is ₹32,500.
- No calendar spread benefit on expiry day. Since 1 February 2025, a position in an expiring contract gets no margin offset against a position in a later expiry.
- Full margin intraday. Since September 2021, intraday positions need the full SPAN and exposure margin, the same as overnight positions.
- Cash and collateral. At least half the margin must be in cash or cash equivalents; pledged shares can cover the rest after a haircut.
The F&O margin calculator shows the margin for futures and short options, with and without the expiry-day margin.
Position limits and intraday monitoring
Exchanges cap how large a position one entity can hold. For index options, SEBI's 2025 circular measures positions in futures-equivalent terms, using delta, and sets limits of ₹1,500 crore net and ₹10,000 crore gross per entity. Since April 2025 the exchanges check index positions several times during the day, not only at the close. For single-stock derivatives, open interest is measured against a market-wide position limit, and a stock that crosses 95% of it enters the F&O ban, when only positions that reduce open interest are allowed.
These limits are far above what an individual trader holds, but the F&O ban affects anyone trading stock options.
Expiry day and the close
- Index options settle on the index's closing value on expiry day.
- Since 3 August 2026, stocks in the F&O segment stop continuous trading at 3:15 pm and the closing auction sets their official close; index and stock F&O contracts trade until 3:40 pm.
- Stock options and futures held to expiry are physically settled: in-the-money stock options lead to delivery of shares.
- Brokers may restrict new positions in stock options near expiry and close in-the-money positions to manage delivery risk.
Rules on expiry-day trading
Expiry-day trades remain allowed, including cheap out-of-the-money options bought for a large move, known as hero zero option trading. The rules change how such trades work. A buyer pays the full premium upfront, a seller of an expiring index option posts an extra 2% exposure margin, and the contracts trade until 3:40 pm and settle on the index's closing value. Because there is only one weekly expiry on each exchange, expiry-day activity is concentrated on Tuesdays for Nifty and Thursdays for Sensex, and the last hour often moves far strikes sharply as positions close.
STT on options and futures
The Finance Act, 2026 raised STT from 1 April 2026: on futures from 0.02% to 0.05% of the sell value, on options from 0.1% to 0.15% of the sell premium, and on exercised options from 0.125% to 0.15% of intrinsic value. Selling one lot of Nifty futures at 25,050 now pays ₹814.13 of STT. The STT tax calculator works it out for any trade.
SEBI rules for algo trading
SEBI's circular of 4 February 2025, on safer participation of retail investors in algorithmic trading, set the SEBI rules for algo trading that now apply to retail traders. The framework started in phases from 1 October 2025 and applied to every broker from 1 April 2026.
| Part of the framework | What it requires |
|---|---|
| Algo ID | Every order from an approved algo carries an exchange-assigned ID, so the exchange can trace it |
| Broker as principal | The broker is responsible for the algos its clients use, and must get each approved by the exchange |
| Algo providers as agents | Providers must be empanelled with the exchanges and work through brokers |
| White-box and black-box algos | Algos whose logic is disclosed (white-box) need exchange approval; black-box providers must also register with SEBI as research analysts, and a change in logic needs fresh approval |
| 10 orders a second | A client who sends fewer orders than this through an API does not need algo registration for their own use |
| Access control | No open APIs: access through a unique API key, two-factor login and whitelisted static IPs |
| Kill switch | Brokers must be able to stop an algo, or all of a client's algo orders, at once |
The glide path ran in steps: brokers registered at least one retail algo product by 31 October 2025, the exchanges held a mock session on 3 January 2026, brokers not ready could not onboard new API-algo clients from 5 January 2026, and the full framework applied from 1 April 2026.
What the SEBI rules for algo trading retail traders mean in practice
The SEBI rules for algo trading retail traders face come down to four points. You can run an algo legally if it reaches the exchange through a broker that has registered it. You can write and run your own algo for your own account without registration if it stays under 10 orders a second. An algo sold to others must be approved, and if its logic is hidden, its provider must be a SEBI-registered research analyst. And your broker can stop any algo at once if it misbehaves.
NSE algo trading rules
NSE's operating standards turn the SEBI framework into exchange rules. NSE algo trading rules cover:
- Registration. Each algo strategy is registered by the broker, with its logic category and risk checks, before it can trade.
- Order tagging. Orders carry the Algo ID assigned at registration.
- Rate limits. Clients above the order-rate threshold must register their algos; orders above the broker's set rate are rejected.
- Testing. Algos are tested in the exchange's test environment and mock sessions before going live.
- Risk checks. Price bands, quantity limits and the exchange's freeze quantities apply to every algo order, with brokers adding their own limits.
BSE has matching rules for algos trading Sensex and its other contracts.
What the rules mean for a retail trader
| You want to | Rules to know |
|---|---|
| Buy Nifty options | Full premium upfront; one lot is 65 units; weekly expiry on Tuesdays |
| Sell Nifty options | SPAN plus exposure margin; extra 2% on expiry day; STT on the sell premium |
| Trade Bank Nifty options | Monthly expiry only, last Tuesday of the month; lot of 30 |
| Hold stock options to expiry | Physical settlement; broker restrictions near expiry |
| Run a strategy automatically | An approved algo with an Algo ID, through a registered broker |
| Write your own code against an API | Under 10 orders a second for your own account; static IP and two-factor login |
Timeline of the rules
- September 2021Peak margin rules complete; intraday positions need full margin.
- 1 October 2024SEBI announces measures to strengthen the equity index derivatives framework.
- 20 November 2024Minimum contract size of ₹15 lakh, one weekly expiry per exchange, extra 2% exposure margin on expiry day.
- 1 February 2025Upfront premium collection; no calendar spread benefit on expiry day.
- 4 February 2025SEBI circular on safer participation of retail investors in algorithmic trading.
- 1 April 2025Intraday monitoring of index derivative position limits.
- 1 September 2025NSE equity derivatives expire on Tuesdays, BSE on Thursdays.
- 1 October 2025The retail algo framework starts in phases.
- January 2026Nifty lot cut to 65 and Bank Nifty to 30 from the January series.
- 1 April 2026Higher STT on futures and options; the algo framework applies to all brokers.
- 3 August 2026Closing auction for stocks in the F&O segment; F&O trades until 3:40 pm.
How the rules changed one Nifty option trade
Take one at-the-money Nifty call bought at ₹280.50 and sold later at ₹300.
| Before November 2024 | October 2026 | |
|---|---|---|
| Lot size | 25 | 65 |
| Premium for one lot | ₹7,012.50 | ₹18,232.50 |
| Paid from | Cash or available margin | Cash, upfront |
| Gain on a ₹19.50 rise | ₹487.50 | ₹1,267.50 |
| STT on the sale | ₹7.50 at 0.1% | ₹29.25 at 0.15% |
| Weekly expiry | Thursday | Tuesday |
The smallest trade now costs more than twice as much, each rupee of premium is worth more, and the sale pays a higher STT rate on a larger value.
Investor protection rules you will meet
- F&O activation. Brokers enable F&O only after you give income or net-worth proof and accept the risk disclosure.
- Risk disclosure. Brokers must show SEBI's risk disclosure on F&O losses before you trade derivatives.
- Margin collected first. Your broker collects margin before the order, and reports margin to the exchange through the day.
- Settlement of funds. Brokers must return unused client funds on a set schedule, so idle money does not sit with the broker.
- No promised returns. Brokers and algo platforms may not advertise past or expected returns from an algo strategy.
What to check before you use an algo platform
- It names the brokers it works through, and those brokers have registered its algos with the exchange.
- Its orders carry an exchange Algo ID.
- It explains how orders reach the exchange: whose static IP, and how you log in.
- Black-box strategies come from a SEBI-registered research analyst.
- You can stop all strategies at once, and so can your broker.
- It makes no claims of guaranteed or expected returns.
What has not changed
- Who may trade: any individual with a broker account and F&O enabled.
- How options work: calls, puts, premiums, strikes and cash settlement of index options.
- Tax treatment: F&O profit remains non-speculative business income.
- Manual trading: placing your own orders through your broker app needs no algo registration.
Rules for stock options and futures
- Physical settlement. Stock futures and in-the-money stock options held to expiry settle by delivery of shares, so you need the shares or the money.
- F&O ban. When a stock's open interest crosses 95% of its market-wide position limit, it enters the ban period: no new positions, only trades that reduce open interest, until it falls below 80%.
- Client limits. A single client's position in one stock's derivatives is capped at a share of that stock's market-wide limit.
- Eligibility. SEBI sets the size and liquidity a stock must have to stay in the F&O segment, and exchanges review the list regularly.
What the algo rules mean for different traders
| Trader | What applies |
|---|---|
| Places orders by hand in the broker app | No algo rules; the option trading rules above apply |
| Writes code for their own account, under 10 orders a second | Broker's API with its API key, two-factor login and a registered static IP; no algo registration |
| Writes code that sends 10 or more orders a second | The algo must be registered through the broker and carry an Algo ID |
| Uses ready-made strategies from a broker or provider | Each strategy runs through the broker with an exchange-issued Algo ID, and the provider must be empanelled with the exchange; software that only runs your own rules works under the rules for client algos |
| Sells or shares a strategy with others | Exchange approval through a broker; black-box logic needs SEBI research analyst registration |
Rules for option buyers and option sellers
| Rule | Option buyer | Option seller |
|---|---|---|
| Money to enter | Full premium, upfront | SPAN plus exposure margin |
| Expiry day | No extra margin | Extra 2% exposure margin on short index options |
| STT | On the sale, at 0.15% of premium; or 0.15% of intrinsic value if exercised | On the sale that opens the position, at 0.15% of premium |
| Most you can lose | The premium | No fixed limit unless hedged |
| Hedge benefit | Not applicable | Lower margin when a bought option caps the loss, except across expiries on expiry day |
Rules brokers apply that affect you
- Square-off of intraday positions. Brokers close intraday (MIS) F&O positions before the close at a time they set.
- Margin shortfall. If your account falls short of the required margin, the exchange charges a penalty, which the broker passes on.
- Order limits. Brokers cap order sizes, order rates and prices far from the market, and reject orders above the exchange freeze quantity unless they are sliced.
- Kill switch. Brokers can stop your algo orders, and must give you a way to stop them yourself.
- Stock options near expiry. Brokers may block new positions in in-the-money stock options in the last days, because of physical settlement.
A checklist for option traders in 2026
- Use the current lot size: 65 for Nifty and 30 for Bank Nifty.
- Note the expiry: Nifty weekly on Tuesday, Sensex weekly on Thursday, others monthly.
- Keep cash for the full premium when you buy.
- Add 2% of contract value to your margin plan for short index options on expiry day.
- Use STT at 0.15% of premium in your cost estimates.
- Close or plan for stock options before expiry because of physical settlement.
- Run any automated strategy only through a broker-registered algo with an Algo ID.
- Check the latest exchange circulars before relying on a date.
Common misunderstandings
- "SEBI banned algo trading for retail traders." It did the opposite: it created a way for retail traders to use algos through brokers.
- "Weekly options are gone." Nifty and Sensex still have weekly options; other indices moved to monthly.
- "Bank Nifty options stopped trading." They trade, with a monthly expiry on the last Tuesday.
- "Upfront premium means sellers need no margin." Buyers pay the premium upfront; sellers still post SPAN and exposure margin.
- "Every API user needs a static IP of their own." Orders must come from a registered static IP, but a platform that sends orders from its own registered IP covers its users.
- "An approved algo is a safe algo." Approval checks the setup and controls, not whether the strategy makes money.
- "The rules only affect large traders." Lot sizes, expiries, margins and STT affect everyone; position limits mostly affect large traders.
Rules for algo platforms that sell strategies
A platform that offers ready-made strategies to many clients is an algo provider under the framework. It must be empanelled with the exchanges, each strategy must be approved through a broker, and strategies whose logic is not disclosed need a SEBI-registered research analyst behind them. A platform may not promise or advertise returns from its strategies. These rules protect the trader who uses the strategy, not the strategy's results: an approved strategy can still lose money.
Keeping up with changes
SEBI announces rules by circular on its website, and NSE and BSE publish the details and start dates as exchange circulars. Brokers usually email clients before a change takes effect. Dates in this guide were checked on 17 October 2026; when a rule here and a newer circular differ, the circular applies.
The retail algo framework, step by step
This is what happens under the framework when a retail trader starts a bot through a platform:
- Login. You log in on the broker's own page with two-factor authentication. The platform receives a session token, not your password.
- Approved algo. The strategy runs as an algo that the broker has registered with the exchange, so it has an Algo ID.
- Orders. The orders go to the broker from a registered static IP, tagged with the Algo ID.
- Checks. The broker's risk system checks each order for price, size, margin and order rate before it reaches the exchange.
- Monitoring. The exchange can see every order of that algo by its ID, and the broker keeps an audit trail.
- Stopping. You can pause the strategy, and the broker can stop it with its kill switch.
Enforcement and warnings
SEBI can act against brokers that let unapproved algos reach the exchange and against providers who are not empanelled. It has also warned investors about platforms that sell algo strategies with promised returns, since no algo can promise a return and such claims are not allowed. If a platform shows returns from its strategies, asks for your broker password or offers to trade your account itself, treat it as a warning sign.
How QuantPower follows the framework
QuantPower is software, and it offers two routes:
- Templates count as your own strategies. QuantPower's ready-made templates, such as straddles and iron flies, load into the strategy builder with every rule visible; you edit and run them as your own strategy from your own computer or VPS.
- Your own strategies, from your own computer or VPS. QuantPower runs on your own computer or VPS, with your own API key, and orders go out from the static IP you register with your broker, within the order-rate limit for self-built algos of fewer than 10 orders a second. You log in on your broker's own page each trading day, and QuantPower stores only the session token, never your password. Keep the computer or VPS on during market hours.
The algo trading guide explains how automated trading works in India.
Is algo trading legal for retail traders?
Yes. SEBI's framework exists so that retail traders can use algos through regulated channels. What is not allowed is an algo that reaches the exchange outside a broker's approved setup: open APIs, unregistered strategies sold to others, or providers who are not empanelled. Before you use any algo platform, check that it names the brokers it works through and that its strategies carry exchange approval.
Related guides
- SEBI compliance: how QuantPower works within the framework
- Algo trading: how automated trading works in India
- Algo trading for retail traders: automation for an individual trading account
- F&O margin calculator: the margin a futures or sold option position needs
- STT tax calculator: STT and the other statutory charges on a trade
- Nifty expiry date: every weekly and monthly expiry date
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Frequently asked questions
Is algo trading legal for retail traders in India?
Yes, through a broker that has registered the algo with the exchange. Every such order carries an exchange-assigned Algo ID.
Do I need SEBI registration to run my own algo?
No, if it trades only your own account and sends fewer than 10 orders a second. Selling or sharing an algo with others needs exchange approval, and a black-box algo's provider must be a SEBI-registered research analyst.
What is an Algo ID?
A unique identifier the exchange assigns to an approved algo. Every order the algo sends carries it, so the exchange and the broker can trace and stop it.
Do these rules apply to manual trading?
The algo rules do not. The option trading rules on lot sizes, expiries, margins, upfront premium and STT apply to every trader.
What is the minimum contract size for index options?
₹15 lakh when a contract is introduced. Exchanges set lot sizes to keep contracts at about ₹15 lakh to ₹20 lakh, which is why a Nifty lot is 65 units from January 2026.
How many weekly expiries can an exchange offer?
One. NSE offers weekly options on Nifty 50, expiring on Tuesdays, and BSE on Sensex, expiring on Thursdays. Other index options expire monthly.
Who is responsible for the orders an algo places?
The broker, as principal. It must have the algo approved, monitor its orders and be able to stop it with a kill switch. You remain responsible for the positions in your account.
Sources
- SEBI: measures to strengthen the equity index derivatives framework for increased investor protection and market stability, 1 October 2024
- SEBI: safer participation of retail investors in algorithmic trading, 4 February 2025, and the implementation timeline that followed
- SEBI: circular on expiry days and position limits for equity derivatives, 2025
- NSE: implementation standards for retail algo trading; revision in market lot of index derivative contracts from the January 2026 series
- NSE: closing auction session for stocks in the F&O segment, from 3 August 2026
- Finance Act, 2026: STT on futures and options from 1 April 2026
- SEBI studies of individual traders in equity F&O, September 2024 and FY26