by Trading Mechanism refers to the system or method through which financial instruments like stocks, commodities, or derivatives are bought and sold in the market. It encompasses the rules, processes, and infrastructure that facilitate the execution of trade orders. There are two main types: order-driven mechanisms, where trades are matched by price-time priority in an order book; and quote-driven mechanisms, where market makers provide bid and ask quotes. Trading mechanisms ensure transparency, liquidity, and fair price discovery by matching buyers and sellers efficiently. With the advancement of technology, electronic trading platforms have become the backbone of modern trading mechanisms.
As of April 2025, the Multi Commodity Exchange (MCX) has updated its trading hours effective from March 10, 2025, aligning with changes in U.S. daylight saving time. The revised trading schedule is as follows:
| Commodity Type | Trade Start Time | Trade End Time |
|---|---|---|
| Non-Agricultural Commodities (e.g., metals, energy) | 9:00 AM | 11:30 PM |
| Select Agricultural Commodities (Cotton, Cotton Oil, Kapas) | 9:00 AM | 9:00 PM |
| All Other Agricultural Commodities | 9:00 AM | 5:00 PM |
These adjustments ensure better alignment with international markets and enhance trading efficiency.
Types of Trading Mechanism:
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Order-Driven Trading Mechanism
In an order-driven trading mechanism, trades are executed based on orders placed by buyers and sellers without any intermediary. Orders are matched using a price-time priority system on an electronic order book. The mechanism ensures transparency, as the order book displays available buy and sell orders. Stock exchanges like NSE and BSE use this system. It promotes efficient price discovery and market liquidity. This system is suitable for markets with high trading volumes, where numerous participants are actively involved in buying and selling. It is commonly used for equities, commodities, and derivative instruments in modern financial markets.
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Quote-Driven Trading Mechanism
Quote-driven trading mechanism, also known as dealer-driven, involves intermediaries known as market makers or dealers who provide continuous bid and ask prices. Traders execute transactions with these dealers rather than other investors. The market maker profits from the spread between the bid and ask prices. This system is less transparent than order-driven markets but provides liquidity, especially in less actively traded securities. It is commonly used in bond markets, foreign exchange trading, and OTC derivatives. Quote-driven systems are beneficial when buyers and sellers are not simultaneously present, as dealers ensure that trading can always take place.
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Hybrid Trading Mechanism
Hybrid trading mechanism combines features of both order-driven and quote-driven systems. Exchanges using this model offer both the visibility of an order book and the liquidity from market makers. It allows participants to choose whether to interact directly with the market or through a dealer. This mechanism is used in several global exchanges, such as the New York Stock Exchange (NYSE), to strike a balance between transparency and liquidity. Hybrid systems are especially useful in markets with varying volumes and diverse trader preferences. It provides flexibility and ensures efficient execution under varying market conditions.
