The pre-market refers to the period before the official opening of the stock exchange (9:15 AM IST) when investors can place buy and sell orders for stocks. However, these orders are not executed immediately; they are collected in an electronic queue and are matched when the market opens.
Key Details of the Pre-Market Session in India
1. Timing
The pre-market session in India is divided into three parts:
- Opening Session (8:45 AM – 9:00 AM):
- Orders can be placed, modified, and cancelled.
- No trades are executed in this period.
- Pre-Open Order Matching Session (9:00 AM – 9:08 AM):
- This is the most critical 8 minutes.
- Orders placed earlier are matched and executed to determine the Opening Price for the day.
- During this time, you cannot place new orders, modify, or cancel existing ones.
- Buffer Period (9:08 AM – 9:15 AM):
- A transition period to prepare for the normal market open at 9:15 AM.
- No orders are matched or executed.
2. The Goal: Determining the Opening Price
The primary purpose of the pre-market session is to find a fair equilibrium price for a stock at the start of the day. This price is calculated based on all the buy and sell orders accumulated during the pre-market period.
This helps avoid wild and volatile swings the moment the market opens.
3. Who Can Participate?
- All investors with a trading account—retail investors, institutions, etc.—can place orders.
- The orders are placed through your regular trading platform (provided by your broker), just like during normal market hours.
4. Types of Orders Allowed
Generally, only Limit Orders are allowed in the pre-market session. This means you must specify the maximum price you are willing to pay (for a buy) or the minimum price you are willing to accept (for a sell). Market orders are typically not allowed.
Why is the Pre-Market Session Important?
It acts as an early indicator of market sentiment for the day. By observing the pre-market activity, you can gauge:
- Gap-Ups and Gap-Downs:
- Gap-Up: If the matched opening price is significantly higher than the previous day’s closing price. This indicates bullish sentiment.
- Gap-Down: If the matched opening price is significantly lower than the previous day’s closing price. This indicates bearish sentiment.
- Reaction to News and Events: The pre-market session reflects the market’s immediate reaction to:
- Company-specific news (e.g., quarterly results, a new CEO appointment, a major deal).
- Global events (e.g., US market performance overnight, movement in Asian markets).
- Macroeconomic data (e.g., GDP numbers, inflation data released before market hours).