Extended Trading Hours – A Boon or Bane?

The whispers surrounding the extension of trading hours have reignited a longstanding debate on whether extended market hours would benefit investors.

What’s Happening?

On 23rd February 2023, NSE extended trading hours for interest rate derivatives from 3:30 pm to 5 pm. But, as this development came into the picture, everyone started talking about the extension of cash and the F&O segment’s trading hours. 

According to Economic Times, the F&O and cash segment trading currently ends at 3:30 pm. But, the stock exchanges can extend the trading in the cash segment till 5 pm and F&O till 11:55 pm. 

Just to let you know, this isn’t the first time that this discussion has occurred, as a similar thing happened in December 2009. Back then, SEBI had given the go-ahead to extend trading hours. Soon after, both the stock exchanges NSE and BSE, sat down to discuss whether the markets would open at 9:55 am as they used to do earlier or at 9 am as recommended by NSE. 

We now know who won the battle as the markets today open at 9 am. 

The second development came in 2018 when SEBI gave a green signal for equity derivatives to be traded between 9 am and 5 pm. But nobody knows what happened. The news flew into thin air in no time, and no action was taken. 

This time, according to Moneycontrol, NSE’s MD & CEO Ashishkumar Chauhan said that NSE is consulting other members on the possible extension of market trading hours. This fanned the decade-old debate, and everyone is discussing whether extended trading hours is a boon or a bane. 

Extended Trading Hours – A Boon or Bane?

• As we know, the performance of global markets somehow impacts the Indian markets as well. So, if an event occurs post-market hours and has affected the global markets, its impact is seen in the Indian markets the next day. Extending market hours could help reduce sudden volatility caused by events transpiring even after 3:30 pm.
• Extended market hours can prove to be a boon for intraday traders as they can harness more trading opportunities in a single trading session both for intraday and F&O. 
• The early opening of SGX Nifty takes business away from India because foreign institutional investors (FIIs) prefer to invest in future Indian contracts through SGX Nifty. So, this can also be fixed.
• Potential traders with full-time jobs could place trades in F&O. This will also boost trading volume. 

Now, if we look at some downsides, 

• This often happens that by the end of a trading session, around 3 to 3:30 pm, traders usually buy a stock which has momentum or buys an option contract with the expectation that the momentum will continue tomorrow. But, with extended trading hours, the sudden volatility or gap-ups and gap-down are expected to subside, because of which traders might not make as much profit as they used to due to sudden volatility.
• During the result season, many companies announce results post-market hours. So, the drastic impact of the result is also seen the next day. If trading hours were to be extended, the effect of the results would be real-time, and traders who had previously tried to predict the market’s next move and profit from sudden price movements would not have the same opportunity to do so.
• Lastly, long trading hours may affect active traders’ mental health, leading to reduced work-life balance and excessive stress. This may also give rise to algorithmic trading over discretionary trading. 

To conclude, there is no confirmation that the trading hours will be extended. It will be interesting to see what happens next.