Pre-Open Session vs Special Pre-Open Session in the Stock Market

In the stock market, trading happens throughout the day, but not all trades happen during regular hours.

In the stock market, trading happens throughout the day, but not all trades happen during regular hours. There are specific sessions, called Pre-Open Sessions and Special Pre-Open Sessions, that occur before the official market hours. These sessions help ensure smooth trading, price discovery, and preparation for the day. Let’s break down both sessions and their key differences.

What is a Pre-Open Session?

A Pre-Open Session (POS) is a special session in the stock market that happens before the regular market opens. In India, for instance, the regular stock market opens at 9:15 AM, but the Pre-Open Session starts at 9:00 AM and lasts for 15 minutes (9:00 AM to 9:15 AM).

Purpose of the Pre-Open Session:

• Price Discovery: The main goal of the Pre-Open Session is to discover the opening price of stocks. The stock market doesn't just open with the first available trade price. Instead, it uses the Pre-Open Session to determine a fair price based on supply and demand.
• Reduce Volatility: The session helps to reduce sudden price swings and brings stability by allowing orders to be placed in an organized manner before the regular trading hours.
• Order Matching: Investors can place buy or sell orders during this session, but these orders are not executed immediately. Instead, they are used to calculate the opening price for each stock. This helps to ensure that stocks open at a fair price, considering the demand and supply.

Key Features of Pre-Open Session:

• Order Entry: Investors can enter their buy or sell orders for stocks.
• Price Matching: The system matches orders to calculate a fair opening price.
• Time Period: Typically runs from 9:00 AM to 9:15 AM.
• No Immediate Execution: Orders are not executed immediately but are used to determine the opening price.

What is a Special Pre-Open Session?

A Special Pre-Open Session (SPOS) is a special version of the Pre-Open Session. It is used on specific occasions, such as when the stock market is reopening after a major event like a holiday, or when there’s a major market disruption.

Purpose of the Special Pre-Open Session:

• Handling Special Circumstances: The Special Pre-Open Session is held when there is a need to adjust for large market events like a market-wide announcement, mergers, or significant news. These situations can cause sudden changes in stock prices, so the Special Pre-Open Session helps prepare the market for a smoother opening.
• Managing Large Price Movements: This session allows the market to adjust before normal trading begins and prevents erratic or extreme price movements when the market opens after such events.

Key Features of Special Pre-Open Session:

• Special Event Driven: It occurs during extraordinary circumstances that might require extra preparation.
• Price Discovery for New Situations: It provides additional time for price discovery, especially after significant market news or changes.
• Extended Time Period: It may last longer than the regular Pre-Open Session depending on the situation.

4. Why Are These Sessions Important?

Both the Pre-Open Session and Special Pre-Open Session play critical roles in maintaining a well-functioning stock market. They allow investors to plan their trades ahead of the official market hours, ensuring smoother price discovery. The Pre-Open Session helps avoid panic buying or selling right at the market open. The Special Pre-Open Session is necessary during special circumstances to prevent chaos in the market.

Conclusion:

While both sessions aim to improve the trading experience, they serve different purposes. The pre-open session helps in normal price discovery before the market opens, while the special pre-open session comes into play during special circumstances, ensuring that the market adjusts to new information. Understanding these sessions can help investors make better decisions and navigate the stock market with more confidence.