What is Pre-Open Market Session in the Stock Market?

How Does Pre-open Session in Share Market Help Reduce Volatility?

The session helps the market to stabilise prices of various companies’ shares by determining the actual demand and supply of the shares. In the process of determining demand and supply, the equilibrium price is decided. This helps in bringing stability as the price and trades are not decided on the basis of trends.

Let’s understand how pre-open session in share market works.

Stock Market Timings in India: Break-Up of the Pre-Open Market Session

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

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 task undertaken in this sub-session is:

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

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

Know Indian Stock Market Timings here

How Is the Stock’s Opening Price in the Pre-Open Market Session Achieved?

During the pre-open market session, call auction takes all orders and then arrives at an equilibrium price. The equilibrium price is the price at which the maximum number of stocks can be traded based on the demand and supply quantity and the price.

The orders are then matched at the equilibrium price and trades take place at this price during the pre market timings in India.

Let us take a look at how the equilibrium price determination takes place in the pre-open market session.

Case 1

For example, the previous day closing price of Stock X is Rs. 100.

The following table gives the price and quantity figures during the pre-open market session.

Stock price Rs.99 corresponds to the highest tradable quantity of 25000 and hence will be considered as the equilibrium price.

Case 2

Let’s have a look at another possible scenario.

The above table shows the maximum tradable quantity corresponding to two stock prices.

In this case minimum of unmatched order quantity corresponds to Rs. 104 (5,000) and not Rs. 99 (10,000). Hence in this scenario, the stock price of Rs.104 will be taken to be the equilibrium price.

Case 3

Now, a possibility can arise that both maximum tradable quantities and unmatched orders are the same, as shown in the following table for stock price Rs. 104 and Rs. 99

In this case, the stock price which is closer to the previous day’s closing price of Rs. 100 will be taken to be the equilibrium price.

So, here it is Rs. 99

Case 4

Both prices are equidistant as is shown by the following table.

In this case, the previous day’s closing price will be the equilibrium price i.e, in this case,  Rs. 100

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 pre-open session will be moved to the normal trading session at the same price.
• Market orders that are not matched/traded during the pre-open session will be moved to the normal trading session at the opening price.
• If the opening price is not discovered during the pre-open market session, then the market orders will be shifted to normal trading session at the previous day closing price.

Who Can Trade in a Pre-Open Market Session?

Mostly anyone can.

Sometimes stock brokers will not activate this feature in your trading account as standard because they don’t want a bunch of new traders trading in the pre and post-market sessions when volatility is a lot higher due to low volume.

So, in that case, you will have to contact your broker to activate the pre-open market session feature if it doesn’t come standard.

The Bottom Line

At present, only NIFTY 50 and SENSEX 30 stocks at NSE and BSE respectively, have been enabled for trading in the Pre-open market session by the exchanges. The NSE pre open market timing is the same as BSE.

Stocks which will get excluded or included in the NIFTY or SENSEX indices will still be a part of the pre-open market session.

Happy Investing!