What is Pre Open Market Stock Trading?

The world of investing can be complex and overwhelming, especially for beginners. One term that you may have come across in your research is "Pre Open Market Stock Trading." But what exactly is pre-market trading, and how does it differ from regular market hours?

Pre-open market trading is a period of time before the regular market opens where traders can place orders to buy or sell stocks. During this time, investors can react to news or events that have occurred outside of regular market hours, and place orders to take advantage of potential opportunities or mitigate risks.

The pre-open session is for a duration of 15 minutes i.e., from 9:00 AM to 9:15 AM. The pre-open session is comprised of order collection period and order matching period. The price band applicable shall be same as normal market.

The 15 minutes of the pre-open market session is broken into three sub-sessions as below:

#1 Order entry session

From 9:00 AM to 9:08 AM (8 Minutes)

The task undertaken in this sub-session are:

• Placing an order to buy and sell stocks.
• Modify or cancel orders.

After these initial 8 minutes, no orders are accepted.

#2 Order matching session

From 9:08 AM to 9:12 AM (4 Minutes)

The tasks undertaken in this sub-session are:

• Order confirmation and order matching
• Calculating the opening price of stocks for the normal session

During this time, you cannot buy, sell, cancel, or modify your order.

#3 Buffer session

From 9:12 AM to 9:15 AM (3 Minutes)

The tasks undertaken in this sub-session are:

• Buffer session
• Facilitates the transition from pre-open to regular market session

This sub-session is also used as a buffer for any abnormalities in the previous two sub-sessions.

Anyone can trade in the preopen market. Only stocks from the benchmark indices BSE Sensex and NSE Nifty are traded in the preopen market.

When the pre-market opening session is ongoing, a call auction takes all orders to identify an equilibrium price. This equilibrium price is the opening price of a stock. It is the price that receives the highest number of orders for buying or selling the share.

In case two or more equilibrium prices are arrived, the price with the lowest unmatched order quantity is taken as the equilibrium price. Furthermore, if there is more than one price with the same unmatched quantity, the price closest to the preceding day’s closing price is regarded as the equilibrium price.

Sometimes, there is no equilibrium price discovery in the pre-open session. If that happens, all orders are transferred to the normal market at the closing price of the previous day.

The orders that have not been matched or traded in pre-open market session is carried forward to the normal trading session and the opening price, in that case, would be:

• Limit orders that are not matched/traded during the preopen session will be moved to the normal trading session at the same price.
• Market orders that are not matched/traded during the preopen session will be moved to the normal trading session at the same price.

In conclusion, pre-open market trading provides investors with an opportunity to react to news and events that occur outside of regular trading hours. During this time, traders can place orders to buy or sell stocks, and this can have an impact on the market's opening price.

However, it's important to note that pre-open market trading can be risky, and investors should carefully consider the potential risks and rewards before participating.