Limit Price Protection - Issues

F&O
1

Context -
Since a few months, every once in a while (especially on expiry day), my options SL orders get rejected by exchange due to Limit Price Protection (LPP) rule.

What have I done?

  1. I read the NSE circular about LPP and understand it well. (Been trading F&O for many years now and understand the details here)
  2. Verified that my trigger and limit prices were in the LPP range for the order canceled by exchange
  3. Tried raising a query with Zerodha. However, i was told that at the point of trigger of SL order, prices shoot up such that my limit price goes beyond “Current price +/- 40%”. Also that these are canceled by exchange and Zerodha cannot do any thing about it.

My logic

  • I understand charts may not show ‘tick-by-tick’ data. But i assume Day’s High / Low of the particular instrument should reflect Hi or Low established due to price spikes.
  • On numerous occasions, i have verified that H/L is within the price range of LPP. Hence it is not possible that price exceeded LPP range causing my orders to be canceled.
  • Given this, i am unable to understand why Exchange is canceling these orders.

Reaching out to @siva and fellow traders to check if they have seen such issues for their trades and whether collectively a submission can be made to NSE to check out on this issue.

@siva - Would you agree that H/L of the day should capture any spike trade (even though it may not be captured by chart)

Looking for some insights on the issue and also what measures people have taken to manage risks in this situation.

2

This issue happens once a while to active traders but guess there is nothing anyone can do about it, even retail traders can’t directly reach out to exchanges to submit their concern, said that it has to come from brokers, if more clients complain to their brokers about this then maybe brokers can take it to exchanges but also they should probably give alternate solution also.

Charts can’t capture all the ticks all the times but for sure high /low will be captured in market depth.

3

Hi @ShubhS9 , @MohammedFaisal ,
Pl refer the issue details in the discussion above. I understand that this is an exchange issue and Zerodha cannot do much about it.
But can you at least take up generation of alert when order is rejected by exchange for LPP violation.

Why is this important?
Lets say, I have sold options and put in buy SL order to manage my risk. When I put in the SL order, exchange does not check for LPP and hence SL order stays in the system. On trigger of SL, Exchange may cancel the order if it breaches LPP rule. While, I am under the impression that my risk is protected, I am exposed to unlimited risk if this happens. An alert on order cancellation will help me take required action.
I am sure many traders will share my views about it.

I raised this issue via support ticket 20250322355019. However, I was advised to keep on checking order book for possible order cancellation. You may agree that someone manually checking order book is not the best use of her time. Also, there is a chance that I step away for 15 mins and market move (and order cancellation due to LPP) causes major loss for me.

Hence I request to take this up as a feature enhancement on priority.

4

Sounds like the system is not designed for retailers. Just yesterday, my algo order got stuck in Open due to a price jump, and I lost a significant amount of money within a few seconds before I could manually cancel it and exit.

This is what happened:

Due to the recent algo requirements, I have to place a market order with a non-zero market protection value. So, I set market protection to -1, which means it will automatically use NSE’s market protection percentages based on option prices. I was under the impression that the system would ensure some level of protection. But it simply can’t, because these default protection percentage values are useless.

It feels like someone just set these values for the sake of it, without considering realistic situations where, on expiry day, an option price can move from 22 to 42 within a few seconds. I was holding a sold call at 22. My algo fired an exit order, and it got stuck in Open because the default market protection was not enough (the market order gets converted to a limit order).

I received a notification, but by the time I could understand what was happening, the price had moved to 42, and I had to exit with a huge loss.

Today, I was evaluating whether this could be fixed using a limit order. I thought I could use extreme values with a limit order that would guarantee execution no matter what. Theoretically, this should work since Nifty weekly options are liquid and there are always bids available around the market price.

For instance, let’s say I bought a CE at 50. To exit this, I could simply place a limit sell order at 0.1. This should definitely fill, and at a price near the market price, because there would be many bids that can fill it.

But alas, this cannot be done because of LPP limits. As you mentioned, we will always be exposed to unlimited risk, even if our SL or LPP-based exit orders are in the system.

This system is not designed for retailers, both manual traders and those using automation.

I wonder if institutions and proprietary algo traders are subject to same limitations. I guess not.