Lot size, expiry and margin: the three things every F&O beginner gets wrong

In futures and options, lot size is the fixed number of units in one contract, expiry is the date the contract stops existing, and margin is the deposit the exchange takes from you to cover potential losses. Beginners get all three wrong in the same ways: they trade one lot thinking it is one share, they hold to expiry without knowing what settlement means, and they mistake margin for the price of the trade. Each mistake is expensive.

What is lot size in options and futures?

In the cash market you can buy one share. In F&O you cannot buy one unit of anything. Contracts come in a fixed bundle called a lot, and the lot size is how many units are in the bundle.

Lot sizes are set by the exchange, not the broker, and they change. The exchange revises them periodically so that one contract stays within a target value range set by the regulator. When Nifty rises a lot, the lot size may be cut; when the regulator raises the minimum contract value, the lot size may be increased. Both have happened. At the time of writing the Nifty lot size is 75 units, but treat that as an example, not a fact to rely on. Check the current lot size on the NSE website before every calculation.

Every stock in F&O has its own lot size, chosen so that one lot is worth roughly the same rupee amount. A ₹3,000 stock might have a lot of 250; a ₹300 stock might have a lot of 2,500. Vikas uses gold lots on MCX in his examples for the same point: the unit you trade is never one gram, it is whatever the exchange has defined.

Why the lot size matters more than the price on screen

The quote you see for an option is per unit. The money that leaves or enters your account is per lot. A Nifty option quoted at ₹100 costs ₹100 × 75 = ₹7,500. A move of ₹1 in the premium is ₹75 to you. A move of 100 points in Nifty is ₹7,500 per lot on a futures position.

The lot converts a number on the screen into rupees at risk. If you do not know the lot size, you do not know what you are risking. That is why every position-sizing calculation in F&O starts with the lot, and it is why the one percent rule sometimes returns an answer of zero lots for a small account. Zero is a valid answer.

What is expiry in options and futures?

Expiry is the last day a contract trades. After that it is settled and ceases to exist. In the cash market you can hold a share for twenty years. In F&O the clock is always running.

Nifty and other index options have weekly and monthly expiries. Stock futures and options have monthly expiries. The specific day of the week for each has been changed by the exchanges more than once in recent years, so look up the current contract specification rather than relying on what a video or a friend remembers.

What happens at expiry

For index contracts, settlement is in cash. The exchange computes a final settlement price and pays or collects the difference. An option that finishes out of the money simply expires worthless and the buyer's premium is gone.

For stock contracts, settlement in India is physical. If you hold a stock option that ends in the money, or a stock future, at expiry, you may be obliged to deliver or take delivery of the full lot of shares. For a lot worth several lakh, that means either the shares or the cash must be in your account, and brokers impose extra margin in the last few days of the contract to cover this. Many beginners discover physical settlement the hard way. If you are learning, understand index contracts first and close any stock F&O position well before expiry.

Why expiry changes how options behave

An option's premium has time value, and time value goes to zero at expiry. In the final days, out-of-the-money options lose value fast even if the underlying does nothing. Expiry-day trading attracts beginners because options are cheap that day, but they are cheap because they are about to be worth nothing. Being right about direction on expiry day still requires the move to happen within hours. Most such trades end with the entire premium lost.

For futures, expiry matters differently. A futures position that you want to keep must be closed and reopened in the next month's contract, called rolling over. This costs a spread and brokerage each month.

What is margin in futures and options?

Margin is a deposit, not a price. When you buy an option you pay the full premium and no margin is needed beyond that. When you sell an option or trade a future, you are taking on an obligation that could cost far more than any premium, so the exchange requires you to keep a deposit in your account against that obligation.

The deposit is not spent. It is blocked. If the position moves against you, the loss is taken from your account every day (called mark-to-market), and if the remaining balance falls below what the exchange requires, the broker asks for more. That request is a margin call. If you cannot meet it, the broker closes your position at whatever price the market offers.

SPAN and exposure margin

The total margin has two main parts. SPAN margin is calculated by the exchange from a model of how much the contract could lose in a bad day, and it changes with volatility. Exposure margin is an additional fixed percentage of contract value on top. Together they typically come to somewhere around 10 to 15 percent of the contract value for Nifty futures at the time of writing, and more in volatile periods, but the exact figure changes daily and your broker's margin calculator is the only reliable source.

Margin must be in the account before the order, in full. SEBI's peak margin rules mean brokers no longer allow the intraday leverage that was once common, and a shortfall attracts a penalty from the exchange.

Margin is leverage, and leverage cuts both ways

If ₹2 lakh of margin controls ₹18 lakh of Nifty exposure, a 1 percent move in Nifty is a 9 percent move in your deposit. That is the appeal and the danger in one sentence. The margin lesson covers leverage in the cash market; the numbers in F&O are larger.

A worked example with Nifty futures

Nifty is at 24,000. Assume a lot size of 75 (check the current value) and a total margin requirement of about 12 percent (check your broker's calculator).

• Contract value: 24,000 × 75 = ₹18,00,000.
• Margin blocked: roughly ₹2,16,000.
• Value of a 1-point move: ₹75.
• Value of a 1 percent move (240 points): ₹18,000.

Suppose you have ₹3,00,000 in the account and you buy one lot of Nifty futures. That evening, Nifty closes 300 points lower. Mark-to-market takes ₹22,500 from your account. You now have ₹2,77,500, and the margin requirement is still about ₹2,16,000, so you are fine for now. Two more days like that and your free balance is gone, the broker calls for funds, and if you cannot add them the position is closed at a loss of more than a quarter of your account. All from a 3 percent move in the index, which happens regularly.

Now run the one percent rule on the same account. One percent of ₹3,00,000 is ₹3,000. At ₹75 per point, that allows a 40-point stop. A 40-point stop on Nifty is inside ordinary noise on most days. The honest conclusion is that one Nifty futures lot is too large for a ₹3 lakh account, and the arithmetic said so before the trade was placed. The risk-reward lesson shows the same calculation from the reward side.

These figures are illustrative and every one of them changes. They are here to show the method.

How the three fit together

Lot size turns a price into rupees. Expiry sets the deadline for being right. Margin is the deposit the exchange takes so the other side gets paid if you are wrong. Together they mean that the same idea in F&O is bigger, faster and more expensive to be wrong about than in the cash market.

It is why the free Trading for Everybody course starts with plain shares, and why the options basics lesson sits before anything about strategies. Open interest, Greeks and strategies all build on these three numbers. Learn them first. META is an education provider, not a SEBI-registered adviser, and nothing here is a suggestion to trade any contract. SEBI's own published studies show that most individual F&O traders lose money.

Common mistakes

• Trading one lot as if it were one share. The rupee exposure of one Nifty lot at the time of writing is many lakh. Compute it before every order.
• Using a lot size from an old video. They change. The exchange website is the only current source.
• Holding stock F&O into expiry without knowing about physical settlement. Delivery obligations on a lot worth lakhs are not a surprise you want.
• Buying cheap options on expiry day. They are cheap because time value is almost gone.
• Treating margin as the cost of the trade. Margin is a deposit against a much larger exposure. The exposure is what moves.
• Ignoring the margin call. A shortfall is not a warning, it is a forced exit and a penalty.
• Sizing by margin available instead of by risk. "I can afford the margin" is not the same as "I can afford the loss".

Key takeaways

• Lot size is the number of units in one contract, set by the exchange and revised periodically. Always check the current value.
• Expiry is the date the contract ends. Index contracts settle in cash; stock contracts settle physically.
• Margin is a blocked deposit against potential losses, adjusted daily. It is leverage, and a small move in the underlying is a large move in your deposit.
• Compute rupee exposure per point and per percent before any order.
• If the one percent rule says zero lots, the answer is zero lots.