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Muhurat trading: One hour of trading on Diwali

[ecis2016.org] Muhurat trading is the trading activity in the Indian stock market that occurs in the evenings for an hour on Diwali.

What is muhurat trading?

Muhurat trading is the trading activity in the Indian stock market that occurs in the evenings for an hour on Diwali. According to Indian tradition, Diwali is considered auspicious and signifies a good return on investing and trading. Therefore, the stock exchange opens the trading window for retail investors and stockbroking houses to place their trade, make some profits, or invest in stocks during Diwali.

Stockbrokers consider Diwali a new financial year, and during this one-hour window, investors open and close settlement accounts. Many natives of Gujarat and Northern Maharashtra perform the Chopda Puja to honour and worship their books of accounts. They believe that investing money in a strong company will hold a benefit in the long run.

In muhurat trading, the BSE (Bombay Stock Exchange) and the NSE (National Stock Exchange) open trading windows for 2 hours, where the trading session begins between 06:15 p.m. and 07:15 p.m., with a block deal session and pre-open session before the normal session, and call auction and closing session after the normal.

Most Hindu investors do Lakshmi Puja (Pray to Goddess Lakshmi) and purchase shares of strong companies that can generate a good return in the long run.

What happens in muhurat trading?

On Diwali, the NSE and the BSE permit trading for a limited time. Typically, the session is divided into the following part:

  1. Block deal session: Two parties agree to buy/sell a security at a fixed price and inform the stock exchange about it.
  2. Pre-open session: The stock exchange determines the equilibrium (usually around eight minutes)
  3. Normal market session: The one-hour session where most trading takes place
  4. Call auction session: Illiquid securities are traded. Security is termed illiquid if it satisfies the criteria set by the exchange. 
  5. Closing session: Traders/investors can place a market order at the closing price

Muhurat trading timing

Muhurat trading session Capital market
Block Deal Session 17:45 to 18:00 hours
Pre-Open Session 18:00 to 18:08 hours
Normal Market 18:15 to 19:15 hours
Call Auction Session  18:20 to 19:05 hours
Closing Session 19:25 to 19:35 hours

Why do people trade during muhurat sessions?

During the muhurat session, the trade volumes are high, keeping the market bullish. It’s a good time to buy or sell stocks because people are optimistic about the economy and the stock market. It’s a good time to purchase high-quality companies’ stocks with a long-term horizon. Experienced day traders can benefit from this session since most investors or traders will buy or sell stocks as a gesture to acknowledge the auspiciousness of the day.

Source: https://ecis2016.org/.
Copyright belongs to: ecis2016.org

Debora Berti

Università degli Studi di Firenze, IT

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