Updated Jan 30, 2022

What is the Pre-open market?

What is the Pre-open market?

Trading hours in the Indian stock market begin at 9:15 a.m. and end at 3:30 p.m. However, there is a 15 minute time before the opening hours known as the pre-open market and has a lot of significance in the trading industry. The pre-open market sessions begin at 9 a.m. and end at 9:15 a.m., and they have been in India since 2010. The purpose of a pre-open market session is to reduce the volatility due to sudden announcements. The NSE and BSE pre-open market timings are the same. Let us learn more about the pre-open market here.

What is meant by a pre-open market session?

The pre-open market session determines the opening price for a stock for the current market on that day. The session stabilizes the volatility cost in the market due to certain announcements made a day or night before the trading session. These events include mergers and acquisitions, restructuring of debts, credit-rating downgrades, and de+listing of stocks. Such incidents are common and frequent in the stock market.

How does the pre-open market session stabilize volatility?

The pre-open market session determines the supply and demand of the stocks, thereby helping them stabilize for the current market situation. While deciding the demand and supply of the shares, traders set an equilibrium price. These equilibrium prices bring stability to the market because people do not determine them using the current trends.

How does the pre-open market session work in India?

The pre-open market session only lasts 15 minutes, but it has three parts. Trading in the pre-open market happens fast.

1. The order entry session

This session begins at 9 a.m. sharp and ends at 9:08 a.m. People undertake the following tasks in this session:

• Place and modify orders to buy or sell the stocks. The market does not accept any new orders or modifications after this duration.

1. The order matching session

This session begins at 9:08 a.m. and ends at 9:12 a.m. The tasks finished in this subsection include the following:

• Confirmation and matching of orders
• Determining the opening size of stocks for the day.

People cannot modify, buy or sell their shares during this time

1. The buffer session

This session begins at 9:12 a.m. and ends at 9:15 a.m. People undertake the following tasks in this 3-minute session:

• Guide the transition from pre-open to the regular market session for the day.
• Create a buffer against any abnormalities in the last two sessions.

These three sub-sessions of the pre-open market session help bring equilibrium to the regular market session.

How to achieve the stock's opening price in the pre-open market session?

Traders arrive at an equilibrium price in the pre-open market session after calling an auction taking all the orders. The equilibrium achieved during this session indicates the price at which people can trade most stocks based on the demand and supply. People match these orders and equilibrium prices during the pre-open market session. In this way, the pre-open market session uses these equilibrium prices to stabilize the market.

What if an order fails to get matched or traded in the open-market session?

Such orders get carried to the regular trading session.

• Limit orders move to the regular session with the same price as before.
• Market orders move into the regular session with the opening price.
• If the opening price of the market orders remains undetermined in the pre-open market session, they move to the regular session. The price stays the same as the closing price of the previous day.

Can anyone participate in the pre-open market session?

The pre-open market session remains open for most people. However, stockbrokers can sometimes deactivate this feature. They do so to avoid the presence of new traders in pre and post-market sessions when the situation is volatile due to low volume. In such cases, you will have to ask your stockbroker to activate this feature for you.

Conclusion

In India, people can only trade in the pre-open market in NIFTY 50 or SENSEX 30 shares in NSE and BSE. The exchanges have not enabled the open market for the other stocks. Anyone can participate in the pre-open market session, but proper guidance is a must before investing in the stock market. The events happening in the world affect the stock market significantly, due to which sudden fluctuations are a common occurrence.