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What is Pre-market trading?

  • Mar 9, 2024

Popularly known as stock pre-market, this trading activity brings both good and bad results. However, for experienced traders, this time period is used to bring better trading opportunities.

Pre-market trading is a vital component of the Indian stock market, which was founded by the National Stock Exchange in 2010. Buy and sell orders are placed within this 15-minute window, which starts at 9.00 AM and ends at 9.15 AM.

Both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) embraced the idea to assist in controlling market volatility and specific counters during off-market hours. This is actually the simple answer to the question, ‘What is pre-market trading?’.

What is Pre-market trading time?

Regular trading hours for investors and traders are 9.15 AM to 3.30 PM on the Indian stock market. Pre-open market trading, which enables traders to place buy and sell orders prior to the markets opening for regular trading, was introduced by the National Stock Exchange in 2010. A thorough guide can assist in understanding the advantages that this novel idea offers traders and investors.

All buy and sell orders for assets are matched during this particular 15-minute period to ascertain supply and demand, which is subsequently utilized to establish the asset's starting price. Investors can determine the mood of investors and the direction of the asset's movement during the day by attentively observing pre-market movements.

Why do people prefer pre-market trading?

Pre-open sessions in the stock market stabilize prices by identifying the real supply and demand for shares, which helps to lessen volatility. By establishing the equilibrium price, this procedure guarantees stability by preventing trades and prices from being influenced by trends, which lowers market volatility.

Pre-market trading is a very advantageous strategy for investors due to its early-movement advantage, potential for reversals, and suitability for time-constrained investors.

During the pre-market trading period the next day, investors can get ahead of the game by placing buy orders based on important news, such as business earnings and geopolitical developments.

Once regular trading begins, the market direction may reverse, providing an opportunity for investors to take advantage of this reversal moment. For instance, pre-market sentiment could be negative if a company reports a record loss during off-market hours, but during regular trading hours, sentiment might shift from being bearish to bullish.

Pre-market trading sessions are a great choice for people with busy schedules since they allow investors to initiate positions at prices that are more advantageous than during regular trading sessions. Pre-market trading gives investors the opportunity to profit on market reversals and gains.

What is the breakdown of the pre-market trading session?

Segment 1: Order Placement

  • All asset classes and segments are eligible for buy and sell orders during this 8-minute segment.
  • Order cancellation and modification are permitted.

Segment 2: Order Matching

  • A 4-minute time frame in which each buy order is verified and matched with a sell order.
  • After matching is finished, the opening price is decided.

Segment 3: Buffer

A 3-minute buffer time is used to address irregularities in the event that they arise, during which stock exchanges do not engage in any significant activity.

How do they determine the price in pre-market trading?

A call auction is used to determine the starting price of the stock during the pre-open market session. The auction accepts all orders and settles on an equilibrium price. Depending on supply and demand, this price establishes the maximum number of stocks that can be traded. Following that, orders are matched at this price, and trades take place in India during pre-market hours.

In a Pre-Open Market Session, Who Can Trade?

Since they do not want a large number of new traders trading during the pre-and post-market periods, it is not really for everyone. When volatility is much higher due to low volume, stock brokers occasionally will not enable this function in your trading account on a standard basis.

If the pre-open market session option isn't included, you'll need to get in touch with your broker to enable it.

What are the risks associated with pre-market trade?

  • Trade Risks Prior to Market
  • The likelihood of losing increases with a wider bid and ask spread and less liquidity.
  • There is a good chance that the order won't be filled by 9:30 AM EST or sooner.
  • Beginners find it challenging to enter the market due to uncertain prices.

Overview of Pre-market Trade Operations

  • The trade market gives traders access to securities listed on the New York Stock Exchange and Nasdaq before regular business hours.
  • Traders have to decide which order to place, such as a market or limit order, and how many shares to buy.
  • Three alternatives are available for a certain execution time: normal market, regular and extended hour markets, and extended hours market.
  • During pre-market hours, orders may not be completed immediately or on the same day due to low liquidity.

Conclusion

Although it can be volatile, pre-market trading establishes the tone for regular trading hours. It is advised that seasoned investors and traders stay away from these times. To assist in making wise financial decisions, this article gives a general review of pre-market trades, their advantages, and other related topics. A well-informed approach requires that your criteria are checked to make sure they align with your investing goals.

Team Sharekhan
by Team Sharekhan

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