Why are the option orders getting rejected, stating that limit orders that are far away from the LTP are restricted?
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Why are the option orders getting rejected, stating that limit orders that are far away from the LTP are restricted?

The price discovery process or mechanism is an activity where prices are determined by the demand and supply of a security through the interaction between the buyers and sellers via orders placed. It has been observed that few traders are placing orders which are in no way related to the current market price of the contract, or orders are placed with prices that are far away from the last traded price. Trades placed at such unrealistic prices may lead to instability in the price discovery process which may lead to freak trades. To learn more about freak trades, visit zerodha.com/z-connect/traders-zone/freak-trades-in-fo-removal-of-execution-range-the-importance-of-limit-orders-and-more

To curb this issue, Zerodha is blocking limit orders for stock and index option trades that are placed 50% to 150% away from the last traded price (LTP). This block only applies if a trader is trying to place a limit buy order at a higher price, i.e. 150% away from the LTP, and sell at a lower price, i.e. 50% away from the LTP. This block won't be applicable if the LTP is lower than 100₹. If a trader still wants to place a limit order outside of these limits, GTT orders can be used. To learn more about GTT orders, see What is the Good Till Triggered (GTT) feature?

  • For stock option contracts, trading is completely blocked for the near-month and the far-month contract if the LTP and the open interest are zero. To learn more about open interest, see What are Open interest limits?
  • For index option contracts, trading is blocked completely for the far-month contracts and long-dated contracts if the LTP and the open interest are zero.