Pre Market Session: Orders, Indicators, Price & Strategy
Following the footsteps of the international market, the premarket data NSE suggests that it was started in India by NSE and BSE in October 2010. The Indian stock market opens at 9:15 AM and closes at 3:30 PM. However, for a NIFTY pre open market session, the Indian markets open between 9:00 AM and 9:15 AM.
Considered a 15-minute session, it stabilises volatility in the stock market by giving investors a chance to trade before the market opens, which can help to spread out the buying and selling pressure.
Thus, let’s discuss the pre market open orders and how the whole system works.
What is Pre Market Open?
The pre market open in the share market refers to the period of time before the regular trading hours when certain stocks can be bought and sold. Thus, the pre-market session occurs between 8:00 AM and 9:30 AM on every trading day. The extended hours trading that allows you to react to news that occurs outside of normal trading premarket hours. As a result, many investors and traders are able to anticipate the market before the regular trading session.
Investors can place pre market orders to buy or sell stocks during trading pre market, which typically occurs in the early morning. However, it’s important to note that not all stocks are available for trading premarket during this NSE pre open market time. Specific stocks that meet certain criteria, such as high trading volume or significant news, generally qualify for trading pre market.
Therefore, pre market open trading can only be executed through an electronic market like an Alternative Trading System (ATS). It is important that even market makers are not permitted to execute until 9:30 AM of the trading day.
Pre Market Open Session Example
It’s 3:45 a.m. on a weekday, and the pre market open session is about to begin. Traders and investors who want to get an early start are eagerly preparing for the trading day ahead. They are ready to react to any news or market developments that may occur before the official market opens.
X, an active trader, sits at his desk with his computer screen displaying real-time stock quotes and market news. A technology company called XYZ Inc., which is expected to release its quarterly earnings report before the market opens, has been closely followed by him.
Here, we will understand the following events:
| Time | Event |
| 3:45 AM | Traders and investors prepare for the pre market open session |
| 4:00 AM | Pre market open session begins |
| 4:00 AM – 9:30 AM | Traders react to the news, place orders, and monitor market developments |
| 4:00 AM | X monitors real-time stock quotes and news, focusing on XYZ Inc. |
| 4:00 AM | XYZ Inc. releases its quarterly earnings report, exceeding market expectations and X expects a potential price increase. |
| 4:00 AM | X decides to place a pre-market order to buy XYZ Inc. shares |
| 4:00 AM – 9:30 AM | X keep an eye on nse pre market data such as news announcements, economic data, and geopolitical events |
| 9:30 AM | The pre market open session ends, and the regular trading session begins. X execute trading strategies based on pre-market analysis |
Segments of Pre Market Orders
The BSE pre open market strategy comprises three segments: an order entry period, an order matching period, and a buffer session, with the same price band as the regular market.
- Order Collection Session: Lasting 8 minutes, this sub-session involves tasks like placing, modifying, and canceling buy and sell orders. No orders are accepted after this 8-minute period.
- Order Matching Period: From 9:08 am to 9:12 am, this 4-minute period focuses on confirming and matching orders. The nifty pre market opening price is determined post order matching, and during this time, participants can’t engage in buying, selling, canceling, or modifying orders.
- Buffer Session: The final 3 minutes, from 9:12 am to 9:15 am, constitute a buffer session. It aims to address any abnormalities and ensures a smooth transition from the pre-open market to the regular market session.
However, it’s important to note that NSE pre open market timing can vary among different exchanges and brokerage firms. Therefore, it is always advisable to consult the specific rules and trading hours of the exchange before participating in NSE pre market trading.
How Pre Market Orders Works?
Pre market orders are orders to buy or sell stocks that are placed before the regular trading day begins. The pre-market session typically starts at 4:00 a.m. ET and ends at 9:30 a.m. ET.
There are two types of pre market orders: limit orders and market orders.
Limit orders specify the price at which you want to buy or sell a stock. If the stock reaches your specified price, your order will be executed. If the stock does not reach your specified price, your order will not be executed.
Market orders are executed at the best available price. This means that you may not get the price that you want. Thus, to place a pre-market order, you will need to contact your broker. Your broker will be able to help you place the order and explain the risks involved.
Thus, while placing limit and market orders amidst normal trading hours, one can only take limit orders in use. The reason-low liquidity among pre market open trading.
How Does Pre Open Session in Share Market Help Reduce Volatility?
This session helps in stabilizing the prices of different company shares by establishing the true demand and supply for the shares. Through this determination, an equilibrium price can be established. Contributing to stability by avoiding reliance on trends for price and trade decisions.
The opening price of stock in pre market open trading is determined using a process called call auction. In a call auction, all the buy and sell orders for a particular stock are collected and then matched at a single price. The pre market open price at which the maximum number of shares can be traded is called the equilibrium price. This price is used as the opening price for the stock.
Here are the steps involved in the call auction process:
- All buy and sell orders for a particular stock are collected.
- The orders are sorted by price.
- The orders are matched at the price at which the maximum number of shares can be traded.
- The equilibrium price is calculated.
- The stock opens at the equilibrium price
Example:
For example, the previous day closing price of Stock X is Rs. 100.
The following table gives the price and quantity figures during the pre-open market session.
| Time | Price (Rs.) | Quantity |
|---|---|---|
| 9:00 AM | 100 | 500 |
| 9:05 AM | 102 | 300 |
| 9:10 AM | 98 | 200 |
| 9:15 AM | 101 | 150 |
| 9:20 AM | 99 | 100 |
| 9:25 AM | 100 | 50 |
In this example:
- The pre-open market session begins at 9:00 AM.
- Traders can place orders, but these orders are not executed immediately. Instead, they are matched at the end of the pre-open session to determine the opening price.
- The price and quantity figures in the table represent hypothetical buy and sell orders placed by market participants.
- The final opening price is determined based on the matching of buy and sell orders.
Factors Influencing Pre Market Open Sessions
Various factors influence pre market open sessions in the stock market. These factors play a crucial role in shaping the conditions and dynamics of the pre market NSE time phase. Some key influencers include:
- Overnight Developments: News, events, or economic data released overnight can significantly impact market sentiment and influence pre-market activities.
- Global Markets: Movements in international markets can set the tone for pre-market trading.
- Corporate Earnings Announcements: Release of quarterly or annual earnings reports before market opens can trigger reactions in pre-market trading.
- Economic Indicators: Early release of economic indicators, such as employment data or GDP figures, can affect and influence pre market open trends.
- Geopolitical Events: Political developments, international tensions, or geopolitical events can create uncertainty and impact investor sentiment in the pre-market phase.
- Market Speculation: Anticipation of significant market events, mergers, acquisitions, or regulatory changes can drive speculative in the market pre open time.
- Technical Factors: Technical analysis, including chart patterns, moving averages, and other technical indicators, may influence trading decisions during the pre market open session.
- Liquidity Conditions: Limited liquidity during pre-market hours can amplify the impact of buying or selling orders. However, this may lead to more pronounced price movements.
Who Can Trade Pre Open Market Session?
In general, pre-market trading is accessible to certain groups of individuals and entities, including:
- Retail Traders: Individual investors who have trading accounts with a brokerage firm that offers pre market trading may have the opportunity to participate. However, it’s important to note that not all brokerage firms provide access to pre-market trading.
- Institutional Investors: Institutional investors, such as mutual funds, hedge funds, and pension funds, often have access to pre-market trading. These entities typically have larger capital and may have direct access to pre market trading platforms.
- Market Makers: Market makers are specialized entities that provide liquidity to the market by continuously offering to buy and sell securities. They play an essential role in pre-market trading by facilitating transactions and maintaining orderly markets.
What are the Advantages of a Pre Market Open Session?
Here, are some of the notable benefits that pre-market trading session provides:
- Early Access to Stock Prices: Even when the market is shut for trading, you get access to stock prices before anyone.
- Minimises Volatility: The NSE pre market open session can help to reduce volatility in the market. By giving investors a chance to place orders before the regular trading session begins.
- Convenience: The ability to start the day early and place orders in the NSE pre-market trading sessions is a big advantage due to the fast pace of life.
- Liquidity: The NSE pre market open session can provide liquidity to the market. This can make it easier for investors to buy and sell stocks.
What are the Disadvantages of NSE Pre Market Open Time?
While the pre open NSE session serves a specific purpose, there are a few potential disadvantages associated with it. Here are some drawbacks that market participants may experience during the NSE pre-open session:
- Limited Duration: The NSE pre market timing has a fixed duration of 15 minutes. This may be considered relatively short for traders and investors to react to news and adjust their trading strategies.
- Limited Order Types: The NSE pre-open session only supports market orders and limit orders. Thus, it restricts the types of orders traders can place.
- Technical Glitches: Technical glitches can occur during the pre market open session. This can prevent investors from placing or executing trades.
- Lack of Experience: Many investors lack experience trading in the pre market open session. This can lead to mistakes that can cost investors money.
Pre Market Open Session vs After-Market Open Session
The pre market open session and the After-market open session are two distinct periods of trading activity that occur outside of the regular trading hours. Here’s a comparison between the two:
| Feature | Pre Market Open Session | After-Market Open Session |
|---|---|---|
| Purpose | React to news and place orders | React to after-hours news and events |
| Time | 9:00 AM to 9:15 AM | 3:40 PM to 4:00 PM |
| Trading Volume | Lower | Higher |
| Volatility | Higher | Lower |
| Liquidity | Lower | Higher |
| Information | Less Available | More Available |
| Fees | Higher | Lower |
| Risk | Higher | Lower |
| Best for | Traders who want to get an early start on the day or who want to take advantage of news that comes out before the market opens | Traders who want to trade after the market closes or who want to take advantage of news that comes out after the market closes |
Why Do Investors Engage in Pre-Market and After-Hours Trading?
Investors engage in pre market open and after-hours trading for a variety of reasons, including:
- To React to News and Events: News and announcements that can move markets after regular trading hours or over the weekend. Having access to the market before the market opens may allow investors to react to these events accordingly.
- To take Advantage of Market Inefficiencies: Pre market open and after-hours trading can be less liquid than regular market trading, which can lead to price discrepancies. Investors who are able to identify these discrepancies can take advantage of them to make profitable trades.
- To Execute Large Orders: Large orders can be difficult to execute. Especially during regular market hours without moving the price of the stock. Pre market open and after-hours trading can provide a more discreet way to execute large orders.
- To Accommodate International Investors: Investors in different time zones may find it more convenient to trade in the pre-market or after-hours sessions.
- To Hedge Against Risk: For example, an investor who might be concerned about a geopolitical event may sell a stock short after hours. This may happen to protect themselves from a potential decline in the stock price.
To Wrap It Up…
Currently, only NIFTY 50 and Sensex 30 stocks have been enabled for trading in the Pre open market session at NSE and BSE, respectively. NSE pre-open and BSE pre-open follow the same timing.
Thus, the stocks that are included or excluded from the NIFTY and Sensex 30, are open for the trading premarket. Since premarket trading comes with a first-mover advantage in the fast-moving market space, it presents an exciting opportunity to many.
FAQs
The securities that can be traded in the pre market open session are stocks, ETFs, and options.
Yes, you can do trading in the pre-open market session. However, it is important to note that the pre-open market is more volatile than the regular market, and there may be less liquidity.
The post-closing session is a period of trading that occurs after the regular market closes. It is used for placing orders that will be executed at the closing price.
Yes, you can cancel pre-market orders. However, you must cancel your orders before market opens at 9:30 AM ET.
The following types of traders typically trade at 4 am: Institutional investors, High-frequency traders, News traders and Arbitrageurs.
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