the primary motive of increasing minimum contract value is to protect the interest of the retail investor.
How does it protect interest of retail investor when retail won't be able to enter into derivative market with such a big contract size ? Indirectly they doesnt want retail to participate in derivative.
If they think retail would divert to cash equity then they are mistaken because people play in derivative because they need overnight position with leverage and in equity its not possible. 80% of market volume is created by these speculators who play in derivative. These are very important people in market as they provide liquidity but this bunch of idiots in Sebi are busy looking for anti-retail policies. This will definitely affect volume. They can't play in stock options either as there is hardly any volume.
In international markets, there are big size contracts but they have kept mini contracts as well for small traders.
Another purpose of derivative is to hedge long term portfolio. There are many investors who use derivative to hedge their long term portfolio and average retail portfolio size is approx 2-3 lac.
Hedging is done with same or lower size of portfolio value but now having minimum 5 lac contract they can't hedge as their portfolio is too small against these derivative instruments and thereby have to keep it without hedge and face market volatility.
Also its not exact 5 lacs, its between 5-10 lacs, so its going to be 7 lacs for most of the contracts as currently in 2 lac size rule there are mostly 3-4 lacs sized contracts.
Retail normally trades with 1 contract and keeps 1-2 contract money for averaging which if he trades in new size contracts he wont be able to do that and would be able to buy only 1 new contract (2 old contracts equivalent) at one price i.e. he is doubling his risk by increasing his quantity at single price, and with no money left for averaging. So if he trades in this new contract then it is guaranteed that he will be wiped out sooner than later.
