The National Stock Exchange is looking to extend the futures and options trading hours in a phased manner. The stock exchange is looking to open a trading window from 6pm to 9pm, after a break from the closure of the regular session from 9.15 am to 3.30 pm.
F&O or futures and options contracts allows an investor to place bets on a particular stock or an index. You can either “go long” which means betting the stock or market will go up, or you can take a “short position” which means an investor is expecting prices to drop.
What are the benefits of having extra hours in F&O trading?
Stock markets worldwide are interconnected. Global news flows, central bank decisions, economic data releases from one country might have a direct or an indirect impact on others.
For instance, in India’s case, factors like US’ central bank decisions, China’s economic data, and the dollar-rupee relationship all have a direct impact on how Indian markets perform.
Now, when it comes to the US - trading hours begin at 7pm IST and trade until 2am IST and a few more hours of after market trading - causing Indian traders tend to miss out on all the market action in the US.
Who stands to benefit?
1. Institutional Investors:
Hedge Funds, Large Stock Brokers and to a certain degree mutual fund houses who have an exposure towards US stock markets have had to shift a part of their trading activities to GIFT city in Gujarat as that’s a 24x7 market, helping traders to invest beyond regular trading hours.
The NSE aims to retain its market share and competitiveness by providing traders with the opportunity to trade beyond conventional hours.
2. Retail/Wholesale Trader
There has been an immense jump in the number of retail traders and is currently on path to witness a trading boom across the board. In the US, where groups of retail traders through apps like Robinhood possess the power to overthrow the bets made by
having a second trading window, particularly during the US session, enables traders to better manage their positions in relation to global markets.
What do professional traders think of the move?
Based on interviews given to multiple media sources, traders in general feel the idea of an evening session could begin to get more stressful which eventually could lead to wrong or loss making decisions.
However, there is a strong possibility that the evening session could attract a different breed of investors. Investors who want added exposure, ones who are looking to react early to news flows in the US and other developed economies.
But, is this move really the solution to broaden the F&O market?
You see, the F&O market or the stock market is essentially a zero sum game. Someone's win is someone’s loss.
There is a limited pot (number of shares) that people are betting for or against and its these market forces which decide the profit or loss you make.
Now if the number of F&O stocks are limited, it really doesn’t matter much if you extend trading hours apart from probably providing a small nudge.
What could help traders and the market probably would be to boost the number of stocks you can trade in the F&O market which can boost efficiency.