Like any religious festival, there is a plethora of beliefs, customs, and traditions that surround Diwali. One such tradition is Muhurat trading. Today, we will discuss this tradition and talk about everything that you need to know about it.
What is Muhurat Trading?
Before we answer the question, what is Muhurat trading, let’s look at the term Muhurat. The word ‘Muhurat’ means an auspicious time. In Hindu customs, Muhurat is a time when planets are aligned favorably to ensure positive results.
Muhurat Trading is a common ritual followed by the traders in India. This is a one-hour time that is considered auspicious on the day of Diwali for investing in shares. The stock exchange specifies the time of Muhurat trading every year.
According to beliefs, people trading during this one hour have a better chance of earning wealth and gaining prosperity throughout the year. Typically, this period is during the evening of Diwali and most people prefer buying stocks as a token of Goddess Lakshmi. This is unique to the Indian stock markets only.
History of Muhurat Trading
When did Muhurat Trading start?
Traditionally, stockbrokers started their new year from the day of Diwali. Hence, they would open new settlement accounts for their clients on Diwali during the auspicious time – the Muhurat.
The broking community would also perform Chopda Pujan or worship their books of accounts on Diwali. There were many beliefs that were associated with Muhurat trading.
The primary among them was that most Marwari 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.
Today, Muhurat trading has become more of a symbolic gesture than a cultural one because people believe the period to be auspicious. Most Hindu investors do Lakshmi Pujan (pray to Goddess Lakshmi) and then purchase shares of strong companies that can generate good returns in the long-run.
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:
Block Deal Session – where two parties agree to buy/sell a security at a fixed price and inform the stock exchange about it
Pre-Open Session – where the stock exchange determines the equilibrium price (usually around eight minutes)
Normal Market Session – the one-hour session where most trading takes place
Call Auction Session – where illiquid securities are traded. Security is termed illiquid if it satisfies the criteria set by the exchange.
Closing Session – where traders/investors can place a market order at the closing price
