Pre-open session in indian stock market
The pre-open session in the Indian stock market is a critical period that takes place before the regular trading hours begin. This session helps in establishing the opening prices for securities and in reducing volatility when the market opens. It is essential for both novice and experienced investors to understand this session and how to effectively place orders during it. This article delves into the details of the pre-open session, its importance, and a step-by-step guide on placing orders during this period.
What is the pre-open session?
The pre-open session is a 15-minute period before the regular trading session in the Indian stock market. This session is divided into three distinct segments:
Order entry period (9:00 AM to 9:08 AM):
During this segment, investors can place buy and sell orders.
Orders can be modified or canceled.
No actual trades are executed in this period.
Order Matching and Confirmation Period (9:08 AM to 9:12 AM):
In this phase, the system matches the buy and sell orders.
The equilibrium price, which is the opening price for the securities, is determined.
No new orders can be placed, and existing orders cannot be modified or canceled.
Buffer Period (9:12 AM to 9:15 AM):
This is a buffer period where no trading activity takes place.
It ensures a smooth transition from the pre-open session to the regular trading session.
The regular trading session starts at 9:15 AM and continues until 3:30 PM.
Importance of the pre-open session
The pre-open session offers several advantages for the market and its participants:
Price discovery:
The primary function of the pre-open session is to discover the opening price of securities.
This process helps stabilize the market by preventing large price fluctuations at the start of trading.
Reduced Volatility:
By determining the opening price through a controlled mechanism, the pre-open session reduces volatility at the market opening.
It minimizes the impact of overnight news and global market developments.
Market efficiency:
The pre-open session contributes to market efficiency by ensuring that opening prices reflect the most recent market information.
It allows investors to react to news and events that occurred after the previous day’s close.
Order matching transparency:
The process is transparent, with orders matched based on a uniform mechanism.
This ensures fairness and reduces the potential for manipulation.
How to Place Orders in the Pre-Open Session
Placing orders during the pre-open session involves a few steps, which are similar to placing orders during regular trading hours but with some key differences. Here’s a comprehensive guide on how to place orders in the pre-open session:
Step 1: Log in to Your Trading Account
Access your trading account through your broker’s platform. This can be done via a web interface, desktop application, or mobile app.
Ensure you have sufficient funds in your account to execute the orders.
Step 2: select the stock
Choose the stock you wish to trade. You can search for the stock by entering its name or symbol.
Make sure to check the stock’s previous closing price and any recent news that might affect its opening price.
Step 3: place the order
Order type: You can place market orders or limit orders. In the pre-open session, both types of orders are accepted.
Market order: An order to buy or sell a stock at the best available price.
Limit order: An order to buy or sell a stock at a specified price or better.
Quantity: Enter the number of shares you want to buy or sell.
Price: For limit orders, enter the price at which you wish to buy or sell the stock. Market orders do not require a price input.
Step 4: review and submit
Carefully review your order details, including the stock symbol, order type, quantity, and price.
Submit the order by clicking the appropriate button (e.g., “Place Order”, “Submit”).
Step 5: monitor order status
After submitting your order, monitor its status through your broker’s platform.
During the order matching period (9:08 AM to 9:12 AM), the system will match your order with corresponding buy or sell orders.
You will receive confirmation of the order execution once the equilibrium price is determined.
Points to remember
Order modification: You can modify or cancel your order during the order entry period (9:00 AM to 9:08 AM). However, once the order matching period starts (9:08 AM), modifications and cancellations are not allowed.
Equilibrium price: The equilibrium price is the price at which the maximum number of shares can be traded. It is determined based on the demand and supply of the stock during the pre-open session.
Partial execution: In some cases, your order may be partially executed if the total quantity is not matched at the equilibrium price. The remaining quantity may be carried forward to the regular trading session.
Market orders: If you place a market order and it doesn’t get executed during the pre-open session, it will automatically be carried forward to the regular trading session.
Example of placing an order
To illustrate, let’s consider an example. Suppose you want to buy 100 shares of XYZ Ltd.
Log in to your trading account: Access your broker’s platform.
Select the stock: Search for “XYZ Ltd.” and select it.
Place the order:
Order type: Select “Limit Order”.
Quantity: Enter “100” shares.
Price: Enter the desired price at which you want to buy the shares, say “₹500”.
Review and submit: Check the details and submit the order.
Monitor order status: Wait for the order matching period to see if your order gets executed at the equilibrium price.
Benefits of Participating in the Pre-Open Session
Participating in the pre-open session offers several benefits:
Early price advantage:
By participating in the pre-open session, you can potentially secure a favorable price before the regular trading begins.
Strategic positioning:
Investors can strategically position themselves to take advantage of anticipated market movements based on overnight news or global market trends.
Liquidity:
The pre-open session provides additional liquidity to the market, making it easier for large orders to be executed without significantly impacting the price.
Reduced impact of market orders:
Since market orders during the pre-open session are executed at the equilibrium price, the impact on the market is minimized, leading to more stable prices.
Conclusion
The pre-open session in the Indian stock market is a valuable tool for price discovery and reducing market volatility at the opening. By understanding the structure and functionality of this session, investors can make more informed decisions and strategically place their orders. Whether you are a novice investor looking to understand market dynamics or an experienced trader aiming for better price points, leveraging the pre-open session can enhance your trading strategy and potentially improve your trading outcomes.
By participating in this session, you can gain an early price advantage, position yourself strategically based on overnight news, and benefit from the additional liquidity provided by the pre-open session. This understanding can lead to more effective and informed trading decisions, ultimately contributing to your success in the stock market.
No comments:
Post a Comment