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Understanding premarket trading in India

If you’re investing in stocks listed on the NSE, you can trade for 15 minutes before the market officially opens. This provision lets market prices adjust to actual supply and demand before the market opens. The provision has been in place for 14 years now.

In this article, we’re going to learn more about what makes this premarket trading different from regular trading and whether you should bother buying or selling before the market opens.

What is premarket trading?

Premarket trading, like the name suggests, is the provision that allows traders to buy or sell equity on the market before it officially opens for everyone. The broader market opens up for trading at 9.15 AM and goes on until 3.30 PM. These are the regular trading hours during which investors and traders may place their buy and sell orders.

The premarket session, however, begins at 9.00 AM and ends at 9.15 AM. Pre-market trading helps curb heavy volatility in the market that may arise due to significant events or announcements that might have happened during the off-market hours (or over the weekend).

During this 15-minute window, all of the buy and sell orders for the respective assets are matched with one another to determine the actual supply and demand. It is this information that is then used to set the opening price of the stock that day.

Breakdown of the premarket trading session

Here are the three segments in which you can also take premarket trades:

  • Order placement (9.00 AM To 9.08 AM) – During this 8-minute segment of the session, traders are free to place buy and sell orders for all the segments and asset classes. They can also cancel or modify orders during this segment.
  • Order matching (9.08 AM To 9.12 AM) – Traders can’t place any more orders during this segment. The exchange, now, matches all buy orders to respective sell orders. Once the orders are complete, the opening price of the security is determined.
  • Buffer (9.12 AM To 9.15 AM) – This short 3-minute session is a buffer during which the exchange doesn’t undertake any major activity. In the case of any abnormalities, however, stock exchanges use this 3-minute session to rectify them.

Advantages of premarket trading

There are several advantages to making premarket trades:

  • Early bird catches the worm – Premarket trading lets you take advantage of big news that shakes the market, like a company’s surprise earnings boom or a global event. In regular trading, you’d have to wait till the market opens, potentially missing out on rallies. With premarket, you can be the first to react.
  • Beat the clock – If you’re a busy professional who doesn’t have time to monitor the market every second and make trades throughout the day accordingly, you can get done with your trades for the day at premarket and not have to look at charts again!
  • Fewer participants gives a clearer picture of the market – Premarket offers a calmer environment compared to regular trading hours when prices move with a lot more volatility. Since most traders aren’t bothering to trade premarket, you get to peek through the curtain before the show begins, letting you gauge the market’s mood before jumping in.

Frequently Asked Questions

Is pre-market trading safe for beginners?

While pre-market offers unique advantages, it’s not a risk-free playground. Lower liquidity can lead to volatile price swings, particularly for smaller stocks. If you’re new to trading, starting with regular hours and thorough research is recommended. 

Does pre-market trading have trading fees?

Most Indian brokers charge the same fees for pre-market and regular trading. However, some may impose additional charges for orders placed outside traditional market hours. It’s wise to check your broker’s specific fee structure before diving in.

Can I cancel pre-market orders before regular trading starts?

Yes, pre-market orders can be cancelled until the regular market opens. This flexibility allows you to adjust your strategy based on overnight news or market developments. Remember, cancellations may incur extra fees.

Are there specific stock types best suited for pre-market trading?

Highly liquid stocks with ample institutional participation tend to be more stable in pre-market sessions. Conversely, thinly traded stocks can be vulnerable to larger price fluctuations due to limited orders.

Does pre-market trading offer significant profit opportunities?

While potential profits exist, pre-market success depends on factors like market knowledge, risk management, and a bit of luck. Don’t view it as a guaranteed money-making machine. 

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