The National Stock Exchange (NSE) of India is set to extend trading hours from 9 a.m. to 11:55 p.m. However, this decision has created a lot of buzz in the market, and some traders are skeptical about the change. The Securities and Exchange Board of India (SEBI) had approved this extension back in 2018, so it's not a new development. In this article, we will discuss the pros and cons of the extension of trading hours and what it means for Indian traders.‍

Why is NSE Extending Trading Hours?

NSE's primary goal is to increase trading volumes and gain back the market share it has lost to international exchanges like Singapore, Dubai, and US exchanges, mainly due to shorter trading hours. Additionally, less than 2% of Indians invest in the stock market currently, and NSE hopes that by extending trading hours, they will be able to attract more people to the market who are unable to trade during normal market hours. Longer trading hours would also enable mutual funds, banks, and insurance companies with significant equity holdings to participate in hedging and provide them with more liquidity.

Concerns among Option Traders:

The extension of trading hours has raised several concerns among traders, particularly those who rely on gap trading and positional option strategies. With the possibility of fewer gaps and lower uncertainty, premiums may decrease, making it more challenging to execute profitable trades. Additionally, discretionary traders who rely on real-time data may find it difficult to manage trades throughout the extended hours.

Key takeaways

• Gap trading and positional option strategies may become less effective
• Premiums may decrease due to fewer gaps and lower uncertainty
• Discretionary traders may find it difficult to manage trades throughout the extended hours

Pros and Cons of the Extension of Trading Hours

Pros of Longer Trading Hours:

1. Increased trading volume: Longer trading hours would allow traders to trade for an extended period, resulting in higher trading volumes. It would give traders more time to trade and more opportunities to make a profit.
2. More opportunities for traders: With extended trading hours, traders who are unable to trade during normal market hours due to their work schedules would have the opportunity to participate in the market.
3. Increased liquidity: Longer trading hours would lead to more liquidity in the market, which would benefit institutional investors like banks, mutual funds, and insurance companies.

Cons of Longer Trading Hours:

1. Stressful for traders: Traders already find the current volatile market stressful. Extending trading hours would add to their workload and increase screen time.
2. Reduced possibility of gaps: The possibility of gaps would reduce drastically with the extension of trading hours, which could affect traders who rely on gaps for their trading strategies.
3. Decrease in option premium: Positional option trading strategy might become even more challenging since option premium might decrease since the possibility of gaps are lesser due to lesser uncertainty.
4. Discretionary traders would be adversely affected: Trading from 9 a.m. to 11:55 p.m. would be too much for discretionary traders, as their trading decisions involve monitoring the charts and taking trades based on real-time data.

Limitations on Option Trading:

However, it is important to note that only index futures will be available during the extended trading hours, not options. This is similar to developed markets such as the US, where only index futures are available during extended trading hours.

Key takeaways

• Only index futures will be available during the extended trading hours
• Options will not be available during extended trading hours

Conclusion

NSE's decision to extend trading hours has its advantages and disadvantages. While it would provide more opportunities for traders and increase trading volume and liquidity, it would be stressful for traders, reduce the possibility of gaps, and affect some trading strategies. Traders need to be prepared to adapt to these changes and adjust their trading strategies accordingly.

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