Does trade size restriction affect trading behavior? Evidence from Indian single stock futures market. Issue 3 (17th November 2019)

• Record Type: Journal Article
• Authors: Banerjee, Anirban; Banerjee, Ashok
• Is Part Of: Journal of futures markets. Volume 40:Issue 3(2020)
• Page Start: 355
• Page End: 373
• Publication Date: 2019-11-17
• Subjects: algorithmic trading -- contract size -- liquidity -- minimum trading unit -- trading volume; Commodity exchanges -- Periodicals; Foreign exchange futures -- Periodicals; 332.632
• DOI: 10.1002/fut.22073
• Languages: English
• ISSNs: 0270-7314

Abstract

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.