The pre-open market session, from 9:00 a.m. to 9:15 a.m., helps determine the opening price for stocks on the NSE and BSE. This 15-minute window helps manage volatility from overnight news, like mergers or credit rating changes. During this time, traders place orders, and the system determines a stable opening price before the regular market starts.
Key points about the pre-open market
1. Timing:
The pre-open market session lasts for 15 minutes, starting at 9:00 AM and ending at 9:15 AM. It serves as a buffer between the pre-market preparation and the regular trading hours.
2. Purpose:
The primary purpose of the pre-open market is to establish the initial price at which stocks will start trading when the regular market opens. It helps reduce volatility during the opening minutes.
3. Segments:
The pre-open session consists of three segments:
- Order entry period (9:00 AM to 9:08 AM): During this phase, market participants can place buy or sell orders.
- Order matching period (9:08 AM to 9:12 AM): The system matches orders to determine the opening price.
- Buffer session (9:12 AM to 9:15 AM): A brief period to adjust any unmatched orders.
4. Both exchanges:
The pre-open market operates on both major Indian stock exchanges: NSE (National Stock Exchange) and BSE (Bombay Stock Exchange).
Investors closely analyse pre-market trading activity to gauge the direction of the stock market before regular trading begins. It is a crucial time for setting the stage for the day’s trading activities.
How does a pre-open session in the share market help reduce volatility?
The pre-open session in the share market plays a pivotal role in mitigating volatility during the opening minutes of regular trading hours. One of the key mechanisms through which it achieves this is by allowing market participants to place orders during a designated time frame, known as the order entry period, which spans from 9:00 AM to 9:08 AM. During this phase, traders can submit their buy or sell orders without the immediate execution of these orders, creating a provisional market equilibrium.
The subsequent order matching period, extending from 9:08 AM to 9:12 AM, is crucial in determining the opening price. The stock exchange system matches the buy and sell orders received during the order entry period to find a balanced opening price that maximises the execution of trades. This calculated opening price is aimed at reducing abrupt and erratic market movements that can occur in the absence of a structured mechanism.
By allowing market forces to interact within a confined timeframe before the official market opening, the pre-open session provides a smoother transition into regular trading. The order matching process ensures that a fair and reasonable opening price is established, reflecting the consensus of market participants. This, in turn, helps prevent exaggerated price swings and sudden fluctuations in stock values that might arise if all orders were executed simultaneously at the market open.
Furthermore, the buffer session from 9:12 AM to 9:15 AM acts as a short interval to address any unmatched orders or anomalies that may have occurred during the order matching period. This additional layer of adjustment contributes to the overall stability of the market, allowing for a more organised and controlled start to the trading day.
Stock market timings in India: Break-up of the pre-open market session
The pre-open market session is 15 minutes and is categorised into three sub-sessions. Here is a detailed break-up of the pre-open market session in India:
Order entry session
The order entry session lasts 8 minutes and runs from 9:00 a.m. to 9:08 a.m. Investors and traders can place buy and sell orders for stocks or cancel or modify them. No order is accepted or can be cancelled or modified after the order entry session is over.
Order matching session
The order matching session starts after the end of the order entry session from 9:08 a.m. to 9:12 a.m. (4 minutes). Investors and traders can do order confirmation and matching. They also use this session to calculate the opening price of stocks so they can make investments accordingly. Investors cannot buy, sell, cancel, or modify orders during the order matching session.
Buffer session
The buffer session starts after the end of the order matching session from 9:12 a.m. to 9:15 a.m. and lasts for 3 minutes. Traders use the time for buffer sessions as this session facilitates the transition from the pre-open market session to the regular market session.
Who can trade in a pre-open market session?
The pre-market session in India is open to all types of traders and investors, including retail investors, institutional investors, and high-net-worth individuals. This session runs from 9:00 a.m. to 9:15 a.m. IST, just before the regular market hours. It allows participants to place orders before the official market opens, enabling them to react to overnight news, global market movements, and other developments.
Investors and traders can place buy and sell orders or modify or cancel them during the three sub-sessions. However, not all stocks are available for trading during this time, and NIFTY 50 and SENSEX 30 stocks are only eligible for pre-market session.
Conclusion
In essence, the pre-open session in the share market serves as a risk-mitigation tool by introducing a phased approach to order placement and execution. By providing a structured framework for establishing the opening price, it fosters a more orderly market environment, reducing the likelihood of extreme price movements and offering market participants a brief yet crucial period to assess and react to the initial market conditions before the commencement of regular trading hours.
