What is Premarket Trading

August 14, 2023

What Is Premarket Trading?

Premarket trading is buying and selling securities before the regular market trading hours begin. The premarket session of the Indian stock market typically runs from 9:00 to 9:15 IST. 


Premarket Trading Meaning

Premarket trading is buying and selling securities before the regular market trading hours begin. The premarket session of the Indian stock market typically runs from 9:00 to 9:15 IST. 

During this time, investors have the opportunity to react to news and events that occur outside of standard trading hours, potentially gaining an edge over those who only trade during regular hours.

Premarket trading often provides a good indication of the market sentiment for the day. For instance, if a company releases positive earnings news after the market closes, traders may start buying the stock in the premarket session, pushing its price up. When the regular market opens, this stock may start the trading session at a higher price than the previous day’s closing price.

How Do You Trade Premarkets?

Premarket trading in India involves a few steps that might differ slightly based on the brokerage platform you use:

  • Choose a broker: Select a broker that allows premarket trading, such as Alice Blue.
  • Place your order: Access the premarket trading section in your trading platform and place your buy or sell orders.
  • Confirm the order: Ensure that your order has been accepted and is ready for execution when the premarket session starts.

Premarket Trading Time

In India, premarket trading for equity markets starts at 9:00 AM and goes until 9:15 AM. This is right before the regular trading session, which starts at 9:15 AM and goes until 3:30 PM.

These 15 minutes of Premarket Trading are divided into three slots based on some operational functions:

1. Order Collection Period 

It lasts for 8 minutes, starting from 9.00 am to 9.08 am. One can execute the following three functions during this period:

  • Placing an order to buy or sell.
  • Modifying an existing order placed after market hours.
  • Cancelling an existing order.

To place an order, you need to have a Demat account. If you don’t have it already, then you are just a click away. Get it immediately for FREE!!!

2. Order Matching and Trade Confirmation Period 

It lasts for 4 minutes, starting from 9.08 am to 9.12 am. Order matching starts right after the collection to determine a single price that becomes the opening price. The NSE defines the following three sequences of order matching:

  • Eligible limit orders are matched with eligible limit orders
  • Residual eligible limit orders are matched with market orders
  • Market orders are matched with market orders

Limit orders are those in which you place the order at your desired price. In market orders, you get the prevailing price available at the moment on stock exchanges. 

3. Buffer Period

Buffer period lasts 3 minutes from 9.12 am to 9.15. It ensures a smooth transition to the opening session. It addresses and resolves any issues in the previous phases before normal trading hours start. 

Premarket Trading – Advantage

The major advantage of premarket trading is that it offers the ability to respond to overnight news impacting stock prices and often indicates the market’s direction for the day. Its higher volatility presents opportunities for greater returns, though this comes with increased risk.

  • First-mover advantage: Traders can react to overnight news or events impacting stock prices.
  • Setting the tone for the day: Premarket trading can indicate where the market is headed for the day.
  • Volatility trading: The premarket session often experiences greater volatility, which some traders can use to their advantage.
  • Potential for higher returns: With higher risk comes the potential for higher returns. Skilled traders can use premarket price movements to realize substantial gains.

Premarket Trading – Disadvantage

The principal disadvantage of premarket trading is the increased risk due to limited liquidity and higher volatility. Liquidity refers to the ability to quickly buy or sell a security without significantly affecting its price.

Additional disadvantages of premarket trading include:

  • Wide bid-ask spreads: Due to low liquidity, the difference between the bid (the highest price someone is willing to pay) and the ask (the lowest price someone is willing to sell) can be quite large.
  • Price volatility: Price changes can be much more dramatic in the premarket due to fewer participants, making it possible for large orders to move prices significantly.
  • Lack of price discovery: The prices in the premarket may not accurately reflect what they will be when full trading begins.

What Is Premarket Trading – Quick Summary

  • Premarket trading refers to the trading activity that takes place before the regular market session begins.
  • It allows traders to respond to news and events outside standard market hours.
  • Premarket trading involves selecting a broker that allows such trading, placing your orders, and confirming them.
  • In India, the premarket trading hours for equity markets are from 9:00 AM to 9:15 AM.
  • Advantages of premarket trading include the first-mover advantage, the ability to set the tone for the day, trading on volatility, and the potential for higher returns.
  • Disadvantages include wide bid-ask spreads, price volatility, and a lack of price discovery.
  • Start your trading journey with Alice Blue. With our ₹15 brokerage plan, you can save more than ₹ 1100 in brokerage monthly. We also don’t levy clearing charges. 

Premarket Trading Meaning – FAQs  

What Is Premarket Trading?

Premarket trading is a session that allows investors to trade stocks before the regular market opens. In India, premarket trading typically occurs between 9:00 AM to 9:15 AM IST. It is a chance for investors to react to news events and earnings reports released after the previous day’s official market close.

How does pre-market trading work?

  • Choose a brokerage: Find a broker that allows premarket trading like Alice Blue.
  • Place an order: Place a buy or sell order on the platform during the premarket hours.
  • Wait for execution: Orders will be executed based on available buyers/sellers at your specified price.
  • Monitor your trades: Keep track of your trades to manage risk effectively.

 Is it good to buy in the premarket?

Whether it’s good to buy in the premarket depends on the individual investor’s strategy and risk tolerance. While the premarket session can provide early insights into the market’s direction, it’s important to note the increased volatility and lower liquidity.

Who can trade in the pre-market in India?

All retail investors who have a Demat and trading account with a broker that offers premarket trading can participate in the premarket session in India. This includes individual investors, institutional investors, and brokers.

Does pre-market affect stock price?

Yes, premarket trading can affect stock prices. Significant buying or selling during the premarket can influence the opening price of a stock when the regular trading session begins.

What time does the pre-market opens?

In India, premarket trading for equity markets opens at 9:00 AM and lasts till 9:15 AM, followed by the regular trading session.

Is the pre-market more volatile?

Yes, premarket trading is typically more volatile due to lower liquidity. This increased volatility can lead to larger price swings, which can be both a risk and an opportunity for traders.

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