Premarket Trading - Buy or Sell Stocks Even Before the Market Opens ??

Vinayak Hagargi. Friday, August 27, 2021.

Talk to a full-time stock market trader and you will know they are morning people. Glued to TV screens and terminals is how their day starts. Before anything, a novice investor must find out the timings of the market. When does the stock market open? If your answer is 9.15 am, you are only partly correct. There are crucial 15 minutes called pre-market trading that starts at 9.00 am. What is it really? Read on. 

Content:

  • What is Premarket Stock Trading?

  • Premarket Timings

  • Premarket Order - How to Place it?

  • Conclusion

What is Premarket Stock Trading?


Stock market makes its moves on the news. A lot pans out after the market closes and the next day starts. If the market reacts to all news at once, the volatility in the market may freeze your blood. This is why stock exchanges conduct a pre-market session that absorbs major events or announcements made overnight. For example, merger or acquisitions, open offers, credit rating downgrades or even trends in the global markets.

Next time you track the stock market, do notice the premarket stock trading. You will see wild swings in news-based stocks and benchmark indices such as Sensex and Nifty. These swings get stable as the clock strikes 9.15 am.

Why do we witness such swings? Consider this: Stock A has won a crucial contract that will boost its earnings. The announcement was made late at night. Now everyone would want a bite of the stock – as early as possible. 

If you place the order during pre-market session, chances are you will bag the stock right at the opening price. Any rally that follows in the regular market will benefit you the most. Since a lot of traders aim for it all at once, it fluctuates the stock price by leaps and bounds during pre-market sessions. 

Thus, the pre-market stock trading ensures stability in the main market and helps discover the correct price of the stock based on the number of buyers and sellers. 

Premarket Timings


Pre-market trade starts at 9.00 am and lasts for 15 minutes. These 15 minutes are divided in 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:

  1. Placing an order to buy or sell.

  2. Modifying an existing order placed after market hours.

  3. Cancelling an existing order.

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 following three sequences of the order matching:

  1. Eligible limit orders are matched with eligible limit orders

  2. Residual eligible limit orders are matched with market orders

  3. 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

It lasts for 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 Order - How to Place it?


The process to place a pre-market order is not different from a regular buy and sell order via Aliceblue. However, you need to keep the following things in mind:

  • Place the order only between 9.00 am to 9.08 am. All overnight orders also get executed during the same period.

  • Only limit and market orders can be placed in pre-market stock trading. 

  • Place your order within the +/- 20 per cent range of last trading day's closing price.

Conclusion


Placing orders in the pre-market session sounds lucrative. But it is not for common investors. Pre-market trades are highly volatile and lack liquidity. Order sizes are often quite big. If you are really interested in it, you may start with a small position to test the waters. 

To master the pre-market stock trading, you must be abreast with latest news releases and economic data that may affect stock prices. You must be savvy enough to execute trades right on time. Take your time to learn the tricks of the trade before jumping in!




Disclaimer: The above article is written for educational purposes, and the companies’ data mentioned in the article may change with respect to time.

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Author : Vinayak Hagargi
Vinayak is Impressively Enthusiastic about Financial Markets, Research & Curating Layman-Friendly Content. He has been Successfully Contributing to the Financial Markets for over 2 years & has written over 100+ articles. He aims to continue sharing his kn

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