A Guide to Infrastructure Mutual Funds
The National Stock Exchange (NSE) is set to introduce a significant change in trading for stocks priced below ₹250. Starting June 10, 2024, the tick size for these stocks will be reduced to 1 paisa. This move is expected to notably impact over 1,300 stocks listed on the exchange.
Tick size is the minimum price movement of a trading instrument. Currently, the tick size for most stocks on NSE is 5 paisa. By reducing the tick size to 1 paisa, NSE aims to enhance liquidity and provide better price discovery for lower-priced stocks. This means that investors can now trade these stocks with a finer price granularity, potentially leading to more precise trading and investment decisions.
According to the circular released by NSE, all stocks trading below ₹250 will be affected by this change. The new tick size will enable investors to place orders with a minimum price change of 1 paisa, compared to the previous higher increment of 5 paisa. This is expected to make the trading process smoother and more efficient, especially for small investors and day traders who deal in large volumes of low-priced stocks.
Market experts believe this reduction in tick size will increase trading activity and liquidity in the affected stocks. The finer price increments are anticipated to attract more retail investors, providing them with better opportunities to enter and exit trades at their desired price points. Additionally, the change is expected to bring about improved price accuracy and tighter bid-ask spreads.
The implementation of the one paisa tick size will be monitored closely by NSE. The exchange has advised all trading members to update their systems and be prepared for the new tick size rule starting from June 10. This includes ensuring that their trading platforms can handle the finer price increments and that all necessary adjustments are made to accommodate the change.
To illustrate the difference, consider a stock priced at ₹200. Under the current tick size of 5 paise, the next possible trading prices are ₹200.05, ₹200.10, and so on. With the new 1 paisa tick size, the stock can be traded at ₹200.01, ₹200.02, and so forth. This finer granularity allows for a more precise price setting and can lead to better matching of buy and sell orders.
In summary, the NSE's decision to reduce the tick size to one paisa for stocks below ₹250 marks a significant step towards enhancing market efficiency and liquidity. This move will benefit investors and the overall market by providing better price discovery and more precise trading opportunities.
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