What does the error 'The order was cancelled by the exchange because the price is outside the current allowed limit price protection range' mean?

When the price in a limit order is placed outside of the Limit Price Protection (LPP) range in an index/stock options contract (PDF) or index/stock futures contract (PDF), the order is rejected with the reason: The order was cancelled by the exchange because the price is outside the current allowed limit price protection range

The LPP range is dynamic or changes with the change in the price of the contract. This is set by the exchanges to strengthen the pre-trade risk control measures in order to prevent freak trades or trades that can get executed at far above or below the current market price. To know more about freak trades, visit zrd.sh/freak-fo-trades-limit-orders.

LPP is applicable to limit orders and Stop loss - Limit order (SL-L) orders in stock and index F&O contracts. SL-L orders that are placed outside the LPP range will be rejected once they are triggered.

Limit order: To place a limit order, ensure that the limit price entered is within the LPP range.
Stop loss - Limit order (SL-L): To place an SL-L order, ensure that the limit and trigger price are within the LPP range.

The computation of the LPP range and the need for the implementation of LPP can be found in the NSE circular (WEB).

The LPP range is calculated as follows:

• For options with a premium value higher than ₹50, the range is +/- 40%
• For options with a premium value lower than ₹50, the range is +/- ₹20 (absolute value and not percentage).
  

Example scenario

If the premium of a Nifty options contract is trading at ₹75, the range is +/- 40% since the premium value is higher than ₹50. 40% of ₹75 = ₹30

Upper range: 75+30= ₹105
Lower range: 75-30= ₹45

The limit or SL-limit order should be placed between the range of ₹105 and ₹45 for this contract. The order will be rejected if it’s placed outside of this range.

However, if the premium is trading at ₹25,  the range will be +/-20₹ as the premium is trading below ₹50.

Upper range: 25+20 = ₹45
Lower range: 25-20 = ₹5

The limit or SL-limit order should be placed between the range of ₹45 and ₹5. The order will be rejected if it’s placed outside of this range.