Both NSE and BSE have introduced mini-contracts on their primary index, namely, NIFTY and SENSEX.
What are these mini-contracts?
As I wrote sometime back, Futures and Options contract size was determined with Rs2 lacs as the base amount for determining the contract size. Over a period of time with increase in the prices, the contract sizes of many F&Oable contracts have gone up way beyond Rs2 lacs. NIFTY with a lot size of 50, will have a contract size of Rs3.05 lacs (50 X 6100). The exchanges thought it would be a good idea to introduce a mini-contract so that margin requirements does not become a problem for small retail investors.
The mini-contracts of NSE is 20 shares instead of 50 shares for the regular NIFTY contract. The margin amount for Mini-NIFTY should be arround 13,700/- compared to Rs34,000/- for the regular NIFTY contracts. As mentioned by the exchanges, with the introduction of the mini-contracts, there will be an opportunity for retail investors to hedge their portfolio better.
I dont think people who trade on NIFTY are doing it for any hedging purposes. Atleast, 90% of the retail crowd is buying or selling NIFTY purely as a speculative bet on the market rather than as a hedging tool. With the introduction of the Mini-contracts, it would accentuate the retail participation in the futures market by enticing them with low initial margins. Exchanges and brokers would be highly benefited with the introduction of the mini contracts more than the retail investors!!
What do you say?