Stock Price Determination in Pre-Market Trading Session
Regular trading on the Indian stock markets (NSE and BSE) begins at 0915 hours and ends at 1530 hours. However, the markets have been opening at 09:00 hours since 20:10. This 15 minutes of pre-open session allows market volatility to cool down.
The stock market is immensely volatile, with constant announcements before any actual trading session can affect stock market prices. Traders can place orders during the pre-open market session at the availing market rates or by specifying their price and quantity.
Read along to know more about this pre-open session.
Timing in India – What Is the Pre-Open Market Session
The NSE pre-open market helps determine the actual demand and supply of shares. This helps understand the equilibrium price. Since trends do not come into the picture yet, to begin with, price equilibrium determination helps bring stability.
The pre-open market NSE session is divided into three parts.
- Order entry session: This 8-minute sub-session begins at 09:00 hours. Traders can place orders for buying and selling stocks. They can also modify or cancel orders during this period.
- Order matching session: This 4-minute sub-session begins at 09:08 hours. During this sub-session, orders will be matched and confirmed at a single equilibrium price which determines the opening price during the regular session. However, traders cannot perform stock transactions or modify their orders during the pre-market open period.
- Buffer session: This 3-minute sub-session is a buffer period between pre-open and continuous sessions. This transition period paves the way for regular market sessions.
Price Determination in Pre-Market Session
The call price mechanism helps determine the equilibrium price at which traders will want to begin trading. The equilibrium price is the cost at which a maximum number of shares are bought and sold.
From the table given below, NSE bids for a particular stock begin in the pre-open market. Bidding begins at the previous day’s price, i.e., Rs. 103, in this case. Here, the max demand denotes a higher supply of shares at this price.
Hence, the number of shares supplied to traders is 11,000. Similarly, the number of shares sold is calculated at each price point. It is evident that at share price = 105, the maximum number of shares purchased is 26,500. Hence equilibrium price is 105.
| Stock price | Order Book | Demand/Supply | Maximum Tradable Quantity | ||
| 103 | 12500 | 10500 | 50,000 | 11,000 | 11000 |
| 104 | 9000 | 9500 | 27000 | 20500 | 20500 |
| 105 | 11000 | 14000 | 26500 | 34500 | 26500 |
| 106 | 5500 | 11000 | 14500 | 45500 | 14500 |
| 107 | 4000 | 12000 | 8000 | 57500 | 8000 |
| 108 | 3500 | 8000 | 4500 | 65500 | 4500 |
Final Word
Investors can take advantage of the NSE pre-open session by understanding how the previous day’s prices impact trading. But first, they need to understand how to select stocks from the pre-open market. Then, they can contact their broker to activate the pre-open session feature in their trading account.
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Frequently Asked Questions:
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Can we trade in the pre-open session?
Usually, there are no restrictions for trading during the pre-opening session. However, some brokers may make trading unavailable for new traders because of high volatility.
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What are the pre-market timings in the Indian stock market?
The pre-market session on the Indian stock exchange begins from 9 AM till 9:15 AM.
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What is the pre-open session for IPO in the Indian stock market?
Special pre-open sessions for IPOs begin at 9 AM and end at 10 AM. However, order placement is only permitted during the first 45 minutes till 9:45 AM.
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