What is Muhurat Trading and What is its History?

The Hindu festival of Diwali is celebrated by Hindus all over the world. It is a time for family, friends and feasting. For many, it is also a time for muhurat trading. Muhurat trading is a special type of trading that takes place on the day of Diwali. It is considered to be an auspicious time to buy and sell stocks, and so many people take part in it. If you’re thinking of taking part in muhurat trading this year, here are some things you should know.

What is Muhurat trading?

Let’s look at the term ‘Muhurat’ in Muhurat trading – It means an auspicious time. In Hindu customs muhurat is a time when planets are aligned favourably to ensure positive results.

Muhurat trading is a special type of trading that takes place on the day of Diwali, which is the Hindu festival of lights. On this day, the markets are open for a specific period of time, and trading takes place during this time. Muhurat trading is considered to be auspicious, and it is believed that it can bring good luck. This can be seen in Indian stock markets only.

History of Muhurat trading

Historically, stockbrokers began their new year on the day of Diwali. As a result, they would open new settlement accounts on Diwali for their clients during the auspicious time—the Muhurat.

On Diwali, the broking community would also perform Chopda Pujan or worship their books of accounts. There were numerous beliefs associated with Muhurat trading.

The primary among them was that most Marwar traders/investors sold stocks during the Muhurat since they believed that money should not enter the house on Diwali and Gujarati traders/investors purchased shares during this period. While there is no data to back this, in current times, this doesn’t hold.

Because people believe the period is auspicious, Muhurat trading has become more of a symbolic gesture than a cultural one. Most Hindu investors perform Lakshmi Pujan (prayer to Goddess Lakshmi) before investing in strong companies that can generate good long-term returns.

What happens in Muhurat Trading?

On Diwali, both NSE (National Stock Exchange) and BSE (Bombay Stock Exchange) permit trading for a limited time. Typically, the session is divided into the following parts 

  1. Block Deal Session –  where two parties agree to buy/sell a security at a fixed price and Inform the stock exchange about it 
  2. Pre-Open Session – where the stock exchange determines the equilibrium price (usually around eight minutes) 
  3. Normal Market Session – the one-hour session where most trading takes place
  4. Call Auction Session – where illiquid securities are traded. Security is termed illiquid if it satisfies the criteria set by the exchange.
  5. Closing Session – where traders/Investors can place a market order at the closing price
Muhurat Trading
Muhurat Trading

Muhurat trading timings

Here is a quick look at the Muhurat Trading time, 2022 for both BSE and NSE Muhurat Trading Session

Capital Market Block Deal Session 17:45-18:00 hours

Pre-Open Market 18:00-18:08 hours

Normal Market 18:15-19:15 hours

Call Auction Session 18:20-19:05 hours

Closing Session19:25-19:35 hours

Who can benefit from it?

Since trading volumes are high during the Muhurat trading session, it is a good time to buy or sell stocks. Also, the market is typically bullish because the holiday spirit of prosperity and wealth inspires people to be optimistic about the economy and stock markets. As a result, the Muhurat trading session is a good time for both experienced and new investors and traders.

Look for high-quality companies and buy some stocks with a long time horizon and in accordance with your investment strategy. However, if you intend to enter the stock trading domain, you should probably observe the markets during trading and do some paper trading to get the hang of things. Because the trading window is only open for one hour, markets are known to be volatile. As a result, being cautious as a new trader is advised.

Because most investors/traders will buy and/or sell stocks as a gesture to acknowledge the auspiciousness of the day, experienced day traders can benefit from this session. The emphasis may not be on profitability as much as it is on the gesture. As a result, seasoned day traders can profit by taking positions after careful consideration. Since the pandemic impacted businesses and livelihoods alike, this year has been bad for the economy.

Things to know before indulging in Muhurat Trading

Here are some aspects that you must keep in mind before you start buying or selling stocks during the Diwali day trading time.

  • Most traders and investors believe that now is a good time to make investments.
  • All open positions at the end of the trading session will result in settlement obligations.
  • Traders must keep an eye on the levels of resistance and support. During Muhurat trading sessions, the markets have been observed to be volatile with no clear direction. As a result, as a day trader, keeping resistance and support levels at the forefront of your trading decisions will assist you in making better trading decisions.
  • Before investing in a company’s stock for the long term, investors must ensure that they stick to its fundamentals. The Muhurat trading session is usually fraught with excitement, and rumours spread quickly. Stick to the fundamentals and invest in accordance with your investment strategy and risk tolerance.
  • If you intend to profit from the volatility, choose stocks with high trading volumes because the trading window is only open for one hour.
  • Investing during this time period does not guarantee a profit. Even if the stock performs well on Diwali, its future performance will be determined by its fundamentals and macroeconomic factors. Invest wisely.

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