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

Anirban Banerjee and Ashok Banerjee

Journal of Futures Markets, 2020, vol. 40, issue 3, 355-373

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.

Date: 2020
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