Why Is There A Pre-Opening Session In Stock Markets?

Stock markets are considered to be the financial barometer of an economy and in the recent past we have seen a weak co-relation between the two in the aftermath of the Covid 19 crisis. When at one point there was a jolt in the world-over indices but then even as the economies including India continued to see the worst ever slump, there was a strong comeback in the markets and in fact now after a 1-year period are at their highest levels on hopes of a faster recovery and as vaccination drive has begun in almost ever nation.

Why Is There A Pre-Opening Session In Stock Markets?

Why the pre-opening session in stock markets?

Before we take on to this query, in the case of new stock listing, there is also a pre-opening ticker price.

And now why pre-opening

It is primarily to curb huge volatility and for better price discovery of stocks. And in India, for the NSE and BSE, it starts at 9:00 am and lasts till 9:15 am. Primarily this is to curb any high volatility in the stock because of some stock-specific or global development overnight.

During the period there is order collection and order matching. The price band applicable for pre open session is 20%.

For the first 8 minutes there shall be order entry, modification and cancellation.

Further in the pre-opening session on the basis of the number of orders in the order book, indicative Nifty index and percentage change of indicative equilibrium price over previous close price is computed and disseminated.

Opening price for the stock or index:

It is decided on the basis of demand supply mechanism. And the equilibrium price is the price at which the maximum volume of order is executable.

Post-market session:

Like wise there exists post-market session that spans from 3:40 to 4:00 pm and during this time, people can place buy or sell order in equity at the market price Though this session is not very active.

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