Muhurat Trading: Meaning, Components & Benefits
Festivals have always played an important role in India, influencing every sphere of life. As a result, the stock markets come up with a distinct identity during these times. In this regard, Muhurat trading is the trading session of India’s stock markets on the day of Laxmi Pooja during Diwali festival.
The timing and date of muhurat trading depend on the Hindu calendar, which functions according to sunrise, sunset and noon. Usually, it happens in the evening and stock markets open for only one hour, allowing traders and investors to trade and book some profits on this auspicious day.
Let us see the various aspects of this trading mechanism in greater detail.
What Is Muhurat Trading?
It is a trading window that opens on the day of Laxmi Pooja during Diwali every year. In Hinduism, the word “muhurat” refers to a time in the calendar which is auspicious or holy. Diwali marks a new year for many communities in India, and this special trading session on Diwali gives you a chance to undertake trading or to invest and yield some profits.
The Indian stock exchanges, i.e National Stock Exchange (NSE) and Bombay Stock Exchange (BSE), open on other normal days for trading activities. However, as it is a holy day, many people participate in trading and investing to take advantage of the prevailing good time and earn a rich bounty.
One of the major objectives of holding these trading sessions is to provide an opportunity to hold a high-frequency trading session.
This type of trading mechanism is unique, especially for the Indian stock markets. Brokerage houses also open new settlement accounts for their clients during trading sessions.
Now that you know the definition of muhurat trading, let’s shift our focus to its other areas.
History of Muhurat Trading
As per tradition, the New Year for India’s business or trading communities starts on Diwali. Many investors prefer to open new accounts or close their accounts or balance sheet for the year. Indian brokerage houses perform the customary Chopda Pooja on Diwali and worship their books of accounts on that day.
India’s flagship trading exchange, i.e. BSE started this concept in 1957. However, after a while, the NSE also introduced this special trading session in 1992. Since then, this trading session has become symbolic for traders, who participate with much vigour and enthusiasm.
What Are the Components of Muhurat Trading?
Here are various components of muhurat trading session in India:
- Block Deal Session: Under this session, buyers and sellers agree to purchase or sell their securities at a predetermined price and update the respective stock exchanges about it.
- Pre-opening Session: As per the rules of the Securities and Exchange Board of India (SEBI), the pre-opening session accounts for only 8 minutes. The main aim of this session is to maintain an equilibrium price.
- Trading Session or Normal Session: The muhurat session for trading lasts for one hour. One can buy or sell securities at this hour, just like in a normal trading session. Usually, it starts at 6:15 p.m., continues for one hour, and ends at 7:15 p.m. on Diwali as per the Hindu calendar.
- Call Auction Sessions: These sessions provide a platform or mechanism to trade illiquid or low-liquidity securities which are defined as shares which have an average daily number of trades below 50, low daily trading volume below 10,000 etc.
- Closing Session: Market participants like traders and investors can place their bets or orders at or near the closing market value during this session.
Who Benefits from Muhurat Trading?
This trading session is a long-standing tradition followed by India’s stock exchanges. However, as per Hindu norms and customs, one should undertake certain specific trading actions at some point in time during Diwali by taking into consideration various astrological recommendations.
Generally, market participants willing to buy or sell a large number of shares or stocks can immensely benefit from these trading hours. However, there may be better ways of carrying out trading actions than trading at auspicious times. Therefore, before making any trading or investment decision, one should look for other technical and fundamental parameters.
Things to Consider Before Taking Part in Muhurat Trading
Here are various factors that one should consider before taking part in muhurat trading sessions:
Register Trading Accounts
Investors need to register their trading or Demat account, as the case may be, with registered brokerage houses. It is crucial for carrying out any activity on stock markets. Registration of these beforehand will ensure convenient trading when an opportunity arises.
Cross Check Accounts
Again, investors need to cross-check all information associated with their accounts. They should also complete their E-KYC formalities and upload or update relevant documents to avoid penalties for non-compliance.
It is very important to keep a tab on the volume levels of the security in which one wishes to invest because it directly depicts the level of activity or the current demand and supply situation relating to that particular security. In addition, this is important as the interest shown by investors will have a direct bearing on the price of respective assets.
Muhurat trading has been a long-standing tradition of India’s stock markets to consider people’s investment sentiments and allow them to participate in the stock market as per their beliefs. However, it is important to thoroughly understand and analyse the market before making any investment decision.
Frequently Asked Questions (FAQs)
When will muhurat trading happen in 2023?
This one-hour trading session will take place in 2023 on November 12 during the auspicious Laxmi Pooja. As per tradition, the trading will start at 6: 15 p.m. and end at 7:15 p.m.
What is the timing of muhurat trading components?
The block transaction session lasts from 5:45 p.m. to 6:00 p.m. Afterwards, the pre-open market session takes place between 6:00 p.m. and 6:08 p.m. After the call option session, which runs from 6:20 p.m. to 7:05 p.m., the closing session takes place between 7:25 p.m. and 7:35 p.m.
Is intraday trading allowed in muhurat sessions?
Yes, intraday or day trading is perfectly legal and is permissible in muhurat sessions. The normal trading time for the entire derivative section, including futures and options, currency and MCX, is between 6:15 p.m. and 7:15 p.m.
Is muhurat trading volatile in nature?
Yes, muhurat trading sessions are quite volatile as the trading window is very small. Apart from this, as many people participate, demand for every stock remains very high. All these eventually lead to increased volatility.