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Muhurat Trading: Everything You Should Know

Introduction

Initiating trading on Muhurat Trading holds the promise of a successful year ahead. As an important tradition followed by the Indian stock exchanges, let's find out what is Muhurat Trading and how it works.

Understanding What Is Muhurat Trading

As one of India's biggest and most prominent festivals, Diwali marks the start of the Hindu Financial Year. Just as it is in every Indian household, Indian stock exchanges too organize a unique and special trading session known as Muhurat Trading to earmark this auspicious occasion.

Muhurat means auspicious and is crucial to Hindu astrology. It is a planned occasion based on the favourable alignments of planets and stars. For decades, Indian stock exchanges have organized Muhurat Trading, a yearly ritual that the investing community looks forward to.

This trading session typically takes place in the evening. It is a special one-hour trading session that is announced by the stock exchanges. During this hour, traders and investors buy and sell stocks to commemorate the start of a new and flourishing financial year.

Additional Read: 5 Tips to Invest in an IPO

The Legend behind the Practice

The practice of Muhurat trading was first introduced in 1957 by the Bombay Stock Exchange. In 1992, the National Stock Exchange introduced this legacy within NSE, and since then, it has been a standard practice for all Indian bourses.

Muhurat trading is a day of immense significance for the trading and business communities in India. And especially so for the Gujarati and Marwari trading communities. This session marks the New Year, also known as Samvat, and during this time, old ledgers are closed, and new ones are opened. The trading community worships new account books and cash chests. 

A host of investors engage in trades and stock market investments during Samvat trading. The special session typically lasts for an hour, and then the stock market remains closed the following day.

Diwali is an occasion where Goddess Lakshmi is worshipped by millions of Indians across the world. According to Hindu tradition, Goddess Lakshmi is the harbinger of wealth and prosperity. And so, it makes perfect sense to engage in financial deals on the day of her worship.

What takes place during Muhurat Trading

A Muhurat Trading session is generally characterized by a positive movement in benchmark indices. However, it has low trading volumes. But just like it is with a regular trading session, here's what takes place during Muhurat Trading as well.

  • Block deal session. Two parties agree to trade or script at a fixed rate. Both parties must then inform the stock exchange about this transaction. This session is typically regarded as a subsection.
  • Pre-open session. In this session, stock exchanges arrive at an ideal opening price for stocks for the upcoming session. It is a significant process aimed at balancing heavy market volatility that may have been impacted due to news developments taking place outside market hours.
  • Regular market session. This is a session where actual trading occurs.
  • Call auction session. In this session, illiquid securities are traded.
  • Closing session. All orders placed during the session are settled at the closing price.

Additional Read10 Intraday Tips for Beginners

What you need to know to plan for Muhurat Trading

If you're looking to engage in Muhurat Trading, here's what you need to do to go about it.

  • Shortlist your securities. Before spot trading commences, make a list of stocks or securities that you wish to purchase. Since the special trading session lasts only for one hour, you need to be sure and mindful of what you're going to buy. Many investors opt to purchase stocks that they plan to hold for the long term on this occasion. Hence, if you're looking to begin your trading during this auspicious session of Diwali, be ready with your list of stocks.
  • Conduct due diligence. With a ready list of securities you wish to buy, examine the technical indicators to know price trends. Choose the right time to trade the stocks based on market momentum and historical data.
  • Launch your first trade. If you are a new stock market investor or trader, this can be an opportune moment for you to jumpstart your investment or trading journey. However, it can be a good idea to make a conservative play. Since it would be your first foray into the stock market, you may want to invest a conservative or reasonable amount in one or two good stocks and study their movement with time. As you read more about how the stock market works, you can eventually scale up your investments.
  • Move with the market. Typically, the market stays bullish on this day. That means it is usually regarded as an excellent moment for intraday traders. If you're looking to trade on this day, you can make a profitable booking from the appreciation of stock prices and close your position before trading ends.

Additional Read: Start Here to Begin Meeting your Financial Goals

Conclusion

Starting your trading journey with Muhurat Trading can be a perfect moment as it promises the blessings of Goddess Lakshmi on your wealth. If you are a seasoned investor and trader, Muhurat Trading is an ideal time to look into your trading strategy or start a new one. Regardless of your investment or trading status, use the auspicious Diwali Muhurat Trading session to launch good trades and hope for a prosperous investment journey in the following months.

Disclaimer : ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.

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