If you regularly track the stock market in India, you might have noticed something interesting. Sometimes when you open your trading app at 9:05 AM, you can already see stock prices moving, even though the market officially opens at 9:15 AM. So what happens during the 10-15 minutes before the market opens?
That short window is called the pre-open market session. It plays an important role in deciding the opening price of stocks for the day.
In today’s blog, we will break down this important mechanism used by the stock exchanges, NSE and BSE.
What is a Pre-Open Market Session?
- This session is a 15-minute period before the regular trading session, during which investors can place buy and sell orders.
- In India, this session is usually from 9:00 AM to 9:15 AM. After that, the normal trading session starts at 9:15 AM and continues until 3:30 PM.
- During this time, traders can place, modify, or cancel orders, but trades are not executed immediately.
Need of Pre-open Session?
The pre-open session was introduced in the Indian stock market in 2010. The main goal was to make the market opening less volatile and more organised.
Why did that happen?
Because overnight news often changes investor sentiment. For example:
- A company may announce strong earnings after market hours
- Global markets might rally overnight
- Government policies or economic data may be released
When the market opened the next morning, everyone rushed to buy or sell at the same time. This created sharp and chaotic price movements.
The pre-open session helps absorb all this information before the market officially starts trading.
Objectives of Pre-Open Sessions
- Reduce volatility: Overnight developments can significantly affect stock prices. The pre-open session allows the market to adjust to new information gradually, and instead of sharp swings at the time of the opening bell, prices settle down.
- Improve Market Efficiency: By collecting orders beforehand, exchanges can match demand and supply efficiently. This leads to a more stable start to the trading day.
- Fair Price Discovery: The opening price of a stock is not based on the first trade anymore. It is calculated using multiple buy and sell orders placed by different investors.
This helps in updating a more balanced opening price.
Read Also: Stock Market Timings in India
Pre-Open Market Session Timings
| Phase | Time |
|---|---|
| Order Entry | From 9:00 AM to 9:08 AM |
| Order Matching | From 9:08 AM to 9:12 AM |
| Buffer Period | From 9:12 AM to 9:15 AM |
How Pre-Open Session Works
The pre-open session is divided into 2 phases:
1. Order Collection
- This period lasts 8 minutes and is the most active part of the pre-open session.
- During this time, investors can place buy and sell orders, modify existing orders or cancel orders.
- The exchange simply collects all these orders and calculates an Indicative Equilibrium Price, which is the potential opening price based on the orders currently in the system.
2. Order Matching
- This period starts immediately after the order collection period, and orders are matched at a single price that will eventually become the open price.
- A pre-decided sequence is followed to match the orders, wherein limit orders are matched with limit orders. Leftover limit orders are then matched with market orders, and finally, market orders are matched with market orders.
What is Equilibrium Price?
- The equilibrium price is the price at which the maximum volume is executable.
- Now, suppose NSE gets bids for a specific stock, ABC, at different prices between 9:00 AM and 9:15 AM.
- Depending on the demand and supply, the exchange will decide the equilibrium price.
- Furthermore, when no equilibrium price is discovered in the pre-open session, all the market orders are shifted to the close price of the previous day, which becomes the open price.
Determination of Equilibrium Price
Instead of executing trades instantly, the exchange first collects all buy and sell orders and then calculates the best possible price where most trades can happen.
Let us see how it works,
To decide the equilibrium price, the exchange looks for a price to fulfill 3 conditions,
- The maximum number of shares can be traded
- Minimum difference between buy orders and sell orders
- If multiple prices satisfy the above, the price closest to the previous closing price is chosen.
Suppose a stock closed yesterday at ₹100 and during the pre-open market session, traders placed the orders given below
| Buy Orders (Demand) | |
| Price | Quantity Buyers Want |
| ₹105 | 1,000 |
| ₹104 | 2,000 |
| ₹103 | 3,000 |
| ₹102 | 4,000 |
| Sell Orders (Supply) | |
| Price | Quantity Sellers Want |
| ₹102 | 1,500 |
| ₹103 | 2,000 |
| ₹104 | 3,000 |
| ₹105 | 2,500 |
Now the exchange will follow the given steps.
Step 1: Check trades possible at each price
If the price is ₹105, only buyers willing to pay ₹105 will buy, and buyers who are available at this price are 1,000.
On the other hand, sellers willing to sell at ₹105 or lower are 9,000. (₹1,500 + 2,000 + 3,000 + 2,500).
So the actual trades possible are of 1000 shares only.
What if the price is ₹104 or more?
In this scenario,
Buyers willing to pay ₹104 or more are 3,000, and sellers willing to sell at ₹104 or lower are 6,500. (₹ 1,500 + 2,000 + 3,000).
So the actual trades possible are of 3000 shares only.
In a similar manner, the exchange will check for other prices also.
Step 2: Choose the price with the maximum trades
| Price | Possible Trades |
|---|---|
| ₹105 | 1,000 |
| ₹104 | 3,000 |
| ₹103 | 3,500 |
| ₹102 | 1,500 |
After checking the number of trades possible at each price, the exchange will finally choose the price at which the maximum shares are traded.
In the example above, the maximum shares are traded at ₹103. So the equilibrium price will be ₹103, which will become the opening price at 9:15 AM.
A simple Analogy to understand the above example:
In a fruit market where buyers and sellers are negotiating the price of apples. The market will decide a price at which most apples can be bought and sold.
Read Also: Understanding Intraday Trading Timings
Who Can Trade in the Pre-Open Session?
Anyone with a trading account can participate, including:
- Retail investors
- Institutional investors
- Mutual funds
- Algorithmic traders
Conclusion
The pre-open market session might last only 15 minutes, but it plays an important role in how the stock market functions. The exchange ensures that the opening price reflects real demand and supply rather than the actions of a few early traders through the collection of buy and sell orders before trading begins.
But understanding how it works can help you interpret the opening price and other overnight developments. For more market news and insights, download Pocketful – offering users zero brokerage on delivery trades and an easy to use platform designed for both beginners and experienced investors.
Frequently Asked Questions (FAQs)
Can investors trade during the pre-open market session?
Investors can place, modify or cancel orders during the order entry period, but actual trades happen only after the opening price is decided.
What is the call auction mechanism in the pre-open session?
It is a system where orders are collected first and executed later at a single price, instead of continuous trading.
What happens to unmatched orders in the pre-open session?
Unmatched orders carry forward to the regular trading session starting at 9:15 AM, depending on the order type.
Is the pre-open session applicable to all stocks?
The pre-open session generally applies to all equity stocks in the cash market segment on NSE and BSE.
What is NEAT+ Terminal used in the pre-market session?
This terminal is the trading system provided by the NSE. Brokers and trading members use to place and manage orders on the exchange. This terminal acts as an interface through which orders are sent to the exchange. NEAT stands for National Exchange for Automated Trading.
