Indian stock market trading hours start at 9:15 AM and end at 3:30 PM.

But the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) started the concept of the pre-open market session to minimize the volatility of securities during the market open every day.

Though this article we will look everything on the pre-open market session.

What is the Pre-Open Market Session?

Pre-Open market Session is a new innovation on the exchange side to arrive at the ideal opening price of a stock for the current trading session.

The duration of the pre-open market session is from 9:00 AM to 9:15 AM, i.e 15 minutes before the trading session starts and is conducted on both the major Indian stock exchanges: NSE and BSE.

It is provided to stabilize heavy volatility due to some major event or announcement that comes overnight before the market actually opens for trading.

Special events, like merger and acquisition announcements by a company, de-listing of stocks, debt-restructuring, credit-rating downgrades, etc., can have an impact on investors.

Stock market timings in India

So basically, the pre-open market session is conducted in the Indian stock market to discover the right price of the stock.

However, most investors do not use the pre-open market session. They only use the normal market session for trading in stocks.

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.

How does stock market work (in India)?

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.

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

Top 10 Companies to Invest in India on the Basis of Market Value

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 Order Book Demand & Supply Quantity Maximum Tradable Quantity Unmatched Orders
BUY SELL Demand Supply
102 1000 985 3400 985 985 2415
104 1275 1161 12600 21000 21000 -8400
105 5000 4300 9000 9500 9000 -500
97 4000 7500 5000 7250 5000 -2250
99 2000 10000 25000 35000 25000 -10000

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.

Stock Price Order Book Demand & Supply Quantity Maximum Tradable Quantity Unmatched Orders
BUY SELL Demand Supply
102 1000 985 3400 985 985 2415
104 1275 1161 30000 25000 25000 5000
105 5000 4300 9000 9500 9000 -500
97 4000 7500 5000 7250 5000 -2250
99 2000 10000 25000 35000 25000 -10000

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

Stock Price Order Book Demand & Supply Quantity Maximum Tradable Quantity Unmatched Orders
BUY SELL Demand Supply
102 1000 985 3400 985 985 2415
104 1275 1161 35000 25000 25000 10000
105 5000 4300 9000 9500 9000 -500
97 4000 7500 5000 7250 5000 -2250
99 2000 10000 25000 35000 25000 -10000

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.

Stock Price Order Book Demand & Supply Quantity Maximum Tradable Quantity Unmatched Orders
BUY SELL Demand Supply
102 1000 985 3400 985 985 2415
104 1275 1161 35000 25000 25000 10000
105 5000 4300 9000 9500 9000 -500
97 4000 7500 5000 7250 5000 -2250
96 2000 10000 25000 35000 25000 -10000

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.

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!