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Does trade size restriction affect trading behavior? Evidence from Indian single stock futures market

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  • Anirban Banerjee
  • Ashok Banerjee

Abstract

Algorithmic traders use their advantage of speed to execute a large number of small‐sized trades in a very short time. In the presence of a minimum trading unit (MTU) restriction, they are forced to trade at the smallest possible sizes, often restricted by the MTU. Using a novel data set of single stock futures market obtained from the National Stock Exchange of India, we show that the MTU restriction acts as a binding constraint for traders while optimizing trade sizes. Contrary to expectation, we find weak evidence that liquidity is positively impacted by the contract size revision.

Suggested Citation

  • Anirban Banerjee & Ashok Banerjee, 2020. "Does trade size restriction affect trading behavior? Evidence from Indian single stock futures market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(3), pages 355-373, March.
    • Handle: RePEc:wly:jfutmk:v:40:y:2020:i:3:p:355-373
    DOI: 10.1002/fut.22073
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    Cited by:

    1. Banerjee, Anirban & Roy, Prince, 2023. "High-frequency traders’ evolving role as market makers," Pacific-Basin Finance Journal, Elsevier, vol. 82(C).

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