Following the footsteps of the international market, the pre-open market historical data 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?
The pre-market 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. It is an extended session that allows you to react to news that occurs outside of normal trading 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 pre-market trading, which typically occurs in the early morning. However, it’s important to note that not all stocks are available for trading during this time. Specific stocks that meet certain criteria, such as high trading volume or significant news, generally qualify for pre-market trading.
Therefore, pre-market 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.
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 trading.
What Is the Nasdaq-100 Pre-Market Indicator?
The Nasdaq-100 Pre-Market Indicator is a tool. It is designed to provide an indication of the pre-market trading activity and sentiment for the Nasdaq-100 Index. Nasdaq-100 Index is a stock market index composed of the 100 largest non-financial companies listed on the Nasdaq stock exchange.
The Pre-Market Indicator calculates a theoretical index value based on the pre-market open prices of the stocks included in the Nasdaq-100 Index. It is typically expressed as a positive or negative percentage change from the previous day’s closing price of the index.
The Nasdaq-100 Pre-Market Indicator is updated every 15 seconds during the NSE pre-market session, which starts at 4:00 a.m. Eastern Time (ET) and lasts until the regular market opens at 9:30 a.m. ET. It provides traders, investors, and other market participants with an early indication of the Nasdaq-100 Index’s likely performance at the opening of the regular trading session.
What is the Time for Pre-Market Open Sessions?
To minimize volatility and discover how securities are opened during the market opening, equity segments allow only pre-open sessions. Thus, the NSE pre-market open time for NSE and BSE conduct is between 9:00 AM and 9:15 AM.
Additionally, during the first eight minutes between 9:00 AM to 9:08 AM, orders are collected, modified, or cancelled by the specified exchange. Thus, this gives clients enough time to place their market orders and limit orders within the specified window. The order collection window closes at any time between 9:07 AM and 9:08 AM.
However, it’s important to note that NSE pre-market trading hours 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 to Determine the Opening Price?
The opening price in pre-market 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 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.
The call auction process ensures that the opening price is fair. Also, that it reflects the true supply and demand for the stock. It also helps to prevent market manipulation by ensuring that all orders are treated equally.
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.
The regular market trading session begins once the opening price is determined, and traders trade securities at the opening price or subsequent market prices.
Pre-Market Open Session Example
It’s 3:45 a.m. on a weekday, and the pre-market 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:
|3:45 AM||Traders and investors prepare for the pre-market session
|4:00 AM||Pre-market 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 news announcements, economic data, and geopolitical events|
|9:30 AM||The pre-market session ends, and the regular trading session begins. X execute trading strategies based on pre-market analysis|
Who Can Trade?
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, and those that do may have specific requirements or restrictions.
- 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, which 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 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-open session 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, restricting the types of orders traders can place.
- Technical Glitches: Technical glitches can occur during the pre-market open session, which 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|
|Information||Less Available||More Available|
|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|
To Wrap It Up…
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.