The National Stock Exchange of India (NSE) is shaking things up with a new 1 paisa tick size for stocks priced below Rs 250. This means more precise pricing and potentially more opportunities for investors.
Set for June 10, the measure aims to enhance price discovery and underscores the competition between NSE and BSE for market dominance. A tick size is the smallest price difference that can exist between two consecutive bids and offer prices.
According to the NSE circular(dated May 24), tick sizes for all securities—except ETFs—in the EQ(Equity), BE(Book Entry), BZ, BO(Bracket Order), RL(Relative Limit), and AF series will be reduced from five paise to one paisa. This adjustment also applies to T+1 and T+0 settlement series (T0). Also, the tick sizes will be reviewed and adjusted monthly based on the closing price of the last trading day of each month.
Starting July 8, stock futures will adopt the same tick size as the cash market segment. Any revisions in tick size will apply to all expiries, including Near-Month, Middle-Month, and Far-Month.
3 Ways NSE’s New Move Will Benefit Investors
Let’s dive into the details of how this change can benefit you:
- Sharper Portfolio Management: With a 5 paisa tick size, you might buy or sell a stock slightly off your target price. The 1 paisa tick size allows for much tighter control, which is especially helpful with lower-priced stocks where small price changes have a bigger impact.
- Cost-Conscious – Cost-Conscious Trading: Bid-ask spreads are the difference between the price someone is willing to pay (bid) and the price someone is willing to sell (ask) for a stock. A wider spread means you pay more to buy and receive less when you sell. With tighter spreads potentially resulting from the 1 paisa tick size, you could see a reduction in your transaction costs. Every penny saved adds up, especially for active traders.
- Unlocking New Strategies: The new system opens doors for more strategic trading approaches. Think of it as having access to a wider range of trading tools in your trading toolbox. With more precise pricing, investors can potentially develop strategies that take advantage of smaller price movements. This could be particularly interesting for day traders who capitalize on short-term fluctuations.
Bonus Benefit: A More Vibrant Market
The increased efficiency and potentially higher liquidity from the 1 paisa tick size could attract more investors to this market segment. This can lead to a more dynamic trading environment for lower-priced stocks, benefiting buyers and sellers with a wider pool of participants.
So, what does this mean for you?
If you trade in stocks priced below Rs 250, you’ll have more control over your entry and exit points. As smaller price movements become possible, you might also see some increased volatility. Overall, the change is designed to create a more efficient and transparent market for these stocks.
Stay informed about how the new tick size affects your chosen stocks, and be prepared to adapt your strategies as needed. This move by the NSE can potentially be a game-changer for investors looking to dive deeper into the world of lower-priced stocks.
FAQs
What exactly is a tick size, and how does it affect me?
A tick size refers to the minimum amount a stock's price can move in one transaction. In simpler terms, it's the smallest “jump” the price can make. NSE's new rule reduces the tick size for stocks below Rs 250 to just 1 paisa. This means you'll have more precise control over your buy and sell orders, especially for these lower-priced stocks.
Will this new system make the market more volatile?
The possibility of increased volatility exists. With smaller price movements now possible, the market might fluctuate more frequently. However, the potential benefits, like tighter spreads and improved price discovery, could outweigh this. Remember, you can always adjust your trading strategies to adapt to any changes in volatility.
Do I need to do anything differently with my current investments?
Not necessarily. However, it's a good idea to stay informed about how the new tick size affects your chosen stocks. You might want to consider how the increased precision could impact your entry and exit points or if it opens doors for new trading strategies.
I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.