What is Muhurat trading?

October 26, 2021 Trading 4 min read
What is Muhurat trading?

The festive period in India starts with Navratri, builds with Dussehra, and then peaks with Diwali. The underlying theme of these festivities is light, prosperity, joy, and celebration. One traditional way of achieving prosperity is by appeasing Goddess Lakshmi, who is renowned as the provider of wealth and good fortune. 

The Diwali muhurat trading session is aimed as a way to incorporate this tradition and for the benefit of investors, traders, and business firms alike to participate in the austerity of the occasion.

What is Muhurat Trading?

As the name suggests, Muhurat trading is a short, momentary trading window open on the auspicious occasion of Diwali. Although the market and exchanges have a holiday on Diwali, a special window is opened up and usually lasts about 1 hour in the evening of Diwali. The stock market muhurat trading time is announced well in advance so that investors and traders are ready and geared up to make the most of this opportunity to partake in this custom which is unique to the Indian stock market.

History of Muhurat Trading

Diwali is known as a ‘shubh muhurat’ (auspicious moment) for several Indian customs and traditions. Many communities consider it as the beginning of the Hindu accounting new year, which is why it is common to see professionals worship their accounting books and tools as a way of inviting good trade all year long. Lakshmi Pooja and Chopda Pooja are two of the most common rituals carried out during this time by several brokerage firms and trading communities. 

Muhurat Trading has become an annual tradition which started in 1957 at the Bombay Stock Exchange (BSE) and has carried on ever since. The National Stock Exchange of India incorporated this tradition in 1992. While largely a symbolic gesture and part of religious customs, Diwali muhurat trading and muhurat trades are also tangibly beneficial, especially for new investors who wish to enter and gain exposure to the equity market.

What happens in Muhurat Trading?

The Diwali muhurat trading session is a short window opened up as a special allowance for people to conduct muhurat trade. This window can be further broken down as follows:

  • Block Deal Session

The Block Deal Session involves 2 parties mutually agreeing upon the purchase or sale of a security with a fixed and predetermined price. This agreement is then notified to the respective stock exchange.

  • Pre-Open Session

Usually, 8 minutes before the muhurat trade window opens, the stock exchanges establish the equilibrium price. This is known as a Pre-Open Session.

  • Normal Market Period

The 1-hour share market muhurat trading time is also referred to as the normal market period.

  • Call Auction Session

If any security meets the respective exchange’s criteria requirements then it is termed as illiquid. These illiquid securities are exchanged during the call auction session.

  • Closing Session

Closing session is when traders and investors can place a market order at the previous day’s closing price.

Muhurat Trading Hours

The muhurat trading hours are based on the Hindu Panchang (traditional calendar) which defines the auspicious moments for carrying out different customs and rituals, including muhurat trading. Each year there is a different muhurat trading time based on the lunar and planetary alignments. In 2021, the Diwali muhurat trading session will be as follows:

Muhurat Trading Session Stock Market
Block Deal 18:07 – 18:12 hours
Pre-Open 18:00 – 18:06 hours
Normal Trading 18:15 – 19:15 hours
Call Auction  18:00 – 19:05 hours
Closing  19:25 – 19:35 hours

Diwali muhurat trading hours for both the BSE and NSE remain the same.

Who Can Benefit from Muhurat Trading?

Muhurat Trading offers many benefits to investors. The festive spirit is in the air all across which usually relates to a bullish market driven by the excitement of the occasion and optimism for the future. This, in turn, leads to high trading volume making it a good time to indulge in buying and selling of securities. Especially for newer investors, this is the right time to make a symbolic gesture and also get exposure to the stock market and get your beak wet. Since the window is open for a very short duration, it can be considered a good practice ground for new investors to understand the market workings, and the way trades are conducted. Using this sample, they can develop their trading style and investment strategy for future investments.

A note of advice for new investors is to make token purchases, which means smaller quantities, of large-cap companies which are well established, stable and reliable. One of the well-known ways of doing well in the stock market is to plan for long-term investments. The longer horizon is an effective way of offsetting the short-term pitfalls. 

Experienced traders too stand to gain, as there is a large volume of muhurat day trade carried out, sometimes mainly as a gesture of custom. Those with sufficient knowledge and experience stand to make good gains by taking carefully considered positions and hedging their risks sensibly.

Things to keep in Mind Before Indulging in Muhurat Trading

The muhurat trading time is short and considered an auspicious gesture, but it is important to keep some things in mind to enjoy this activity without incurring losses which are bound to play spoilsport on this joyous occasion. 

  • An auspicious occasion is no guarantee of assured returns. After all, the market performance is not dependent on a 1-hr window. Hence muhurat trades should be carried with equal amounts of research and analysis as on any other given day.
  • Do not let the rush and excitement of the occasion carry you away. Stay clear of rumors, tips, and speculations. Believe in veritable information from authorized sources.
  • Since the muhurat trading time is only for one hour, buying equities with high trading volumes may make more sense and can possibly lead to a profit from the volatility.
  • Many experts suggest buying blue-chip stocks with a long-term investment horizon. Experienced investors may carry out muhurat trades based on their own trading styles but newbies will benefit from following this advice.
  • Experts also suggest refraining from carrying out intraday muhurat trading. This is largely due to the liquidity constraints and a very short window requiring extra attention and alertness. Again, experienced traders may still go ahead with intraday trading based on their level of comfort and knowledge.
  • All open positions at the end of the muhurat trading session will result in settlement obligations and the window will operate as per the timetable provided in the earlier section. 

Armed with this knowledge, you can participate in the excitement of muhurat trading and take the first step towards a prosperous time ahead. Get a #SmartAarambh with TradeSmart and begin your trading journey with us.

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