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

ICICI Securities 02 Nov 2021 0 COMMENT

Introduction

There are many aspects to trading, and for a beginner, it helps to gather as much knowledge as possible. Here we examine one such important factor, Pre-Market Trading. It is trading that occurs on exchanges before the regular trading hours start.

The volume traded in the Pre-Open Market is usually lower than what you see during the regular trading hours. There are not many participants active before the start of the market, and investors often find it challenging to execute the transactions. If you engage in Pre-Market Trading, you will have less liquidity, and the prices might not adjust as they do in a regular trading session.

What is the pre-open market?

You can engage in premarket trading between 9:00 AM to 9:15 AM on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). The pre-market is a period of trading activity that happens before the regular stock market session. 

Background of premarket trading

The Pre-Open Market session gets executed through the computer and with an alternative trading system. Traders use it to see where the market is headed before the start of regular trading. It also helps you get ahead of the market reactions to the latest news like political instability or overseas events that could influence the market or a particular sector. 

Further, if the company announces good earnings after market closure, there will be a rise or fall in stock on the next trading day. In such cases, the pre-market trader takes advantage of the market volatility and attempts to buy and sell the securities.

Understanding pre-market trading

The trading in an extended session happens through an Electronic Communication Network (ECN). So, when you place a buy order at a specific rate, the ECN keeps track of a similar sell order by acting like a matchmaker that connects the buyer and seller. There is no need for a broker for the transaction to happen. The liquidity level is low, and the trades are volatile. Here are the types of orders you can place: 

Limit orders

If you place an order for a certain quantity at a specific price, it only gets executed when the security reaches the price. This is known as a limit order.

Market orders

When the order price is not specified during the buy or sell transaction, and you want them to get executed at the prevailing price, it is known as a Market Order. The pre-market session takes place in three slots, starting from 9:00 AM. The first session lasts eight minutes and is known as the order collection period. You can modify or cancel the order during this period. Then there is a four-minute session known as the order matching period and confirmation of trade period.

Here, the orders placed get confirmed based on the price identification method, and there is no possibility of order modification or cancellation. The last session is a three-minute buffer period that facilitates the transaction from the pre-open market to the regular market session.

Conclusion

Now that you know about Pre-Market Trading make the most of it by placing orders before the regular session.

Disclaimer: ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.