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There is a crucial 15-minute window from 9.00 am to 9.15 am before the market officially opens. The pre-market session plays an important role in stabilizing market volatility before the trading session begins. Having a clear understanding of the pre-open session helps investors and traders make pre-determined decisions and avoid impulsive trades influenced by sudden price fluctuations.
What is Pre-Open Session?
The pre-open session is a 15-minute trading window before the market hours of the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). It is considered a buffer period to determine opening prices for stocks based on supply, demand, and the current situation for the stock.
The main goal is to reduce the impact of overnight news, international market movements or corporate actions on stocks. During these 15 minutes, only orders from the equity segment are accepted, which also allows modifying and cancelling the traders’ buy or sell orders before the market opens, allowing the market to open more smoothly with better price stability.
Pre market timing
The Pre Open Session session from 9.00 am to 9.15 am, which helps in reducing volatility, is divided into three phases:
Order Entry (9.00 am – 9.08 am):
Allows investors to place, cancel, or modify their buy and sell orders. This phase is important to assess the overall market sentiment and determine a stable opening price.
Order Matching and Confirmation (9.08 am – 9.12 am):
The exchange system matches buy and sell orders to determine the equilibrium price and Theoretical Opening Price for every stock. This phase helps to determine a fair value to bring a balance between demand and supply.
Buffer Period (9.12 am – 9.15 am):
The interval time before the regular trading starts. This phase ensures an effortless transition from pre-open session to actual trading session, where no new orders can be placed.
Importance of Pre open session
The Pre Open Session is considered a shield against extreme volatility that might take place after the market opens.
- Reduced volatility
Pre-open session works on suppressing sudden spikes or dips, reducing volatility at the time of opening. This is achieved by channeling market emotion and overnight news into a structured pricing process.
- Efficient pricing
It ensures that the opening price reflects the actual investor sentiment and not sudden news.
- Transparency
The session maintains transparency and fairness as it allows all participants to have equal access to modify their orders.
- Speculative Trades
The structure of time before the market opens discourages speculative orders, which could otherwise lead to disruption in early market trends.
Impact on Market Participants
- Institutional Investors:
Pre-market session allows investors to execute large and bulk orders without causing disruptions in the market. The order matching process duration supports the institutional investors by aggregating buy and sell interests and giving a fair price for bulk orders.
- Retail Investors:
Retail investors use this time window as an opportunity to study early market sentiment and price fluctuation signals. They can modify their orders based on the overnight news to avoid early volatility and plan trades for the day.
- Market Makers:
Market makers are responsible for providing liquidity, ensuring smooth and orderly trading. The data from the pre-open session helps the market makers to make adjustments accordingly. This supports a balanced and more efficient open as they tailor strategies for an optimal liquidity position and risk hedging
Pre Open Price vs Actual Open Price
| Pre Open Price | Actual Open Price | |
| Purpose | Helps reduce volatility and bring in a fair starting point before the market opens. | It is the official price at which trading begins for the day. |
| Time | Between 9.00 – 9.15 a.m. (before regular trading hours) | At or after 9.15 a.m |
| Influencing factors | Influenced by overnight news, economic data, and early market sentiment | Influenced by live market supply and demand and volume spikes. |
| Calculation | Derived based on aggregated buy and sell orders to find an equilibrium price. | Based on buy and sell transactions during live trading |
| Price Stability | May change until the pre-open matching process is complete | It is the first official traded price of the day |
| Applicable stocks | Selected highly liquid and index-based stocks. | All equities traded on the exchange. |