Market My Words: Decoding the Pre and Post Market Buzz
Pre-Market Conditions
Pre-Market activity occurs before the regular marketing sessions. It starts from 9:00 a.m. to 9.15 a.m. Pre-market session mainly aids to reduce the price volatility at the timing of market opening.
To ascertain actual supply and demand, all of the buy and sell orders are matched with one another throughout this 15 minute period. The asset's opening price is subsequently determined using this data.
Breakdown time of the Pre trading sessions
Order Placement
It is the 1st segment starting from 9:00 a.m. to 9:08 a.m. During this segment, it is free to place an order, modify or cancel the buy and sell orders.
Order Matching
This is the 2nd segment from 9:08 a.m. to 9:12 a.m. During this segment, the stock exchange confirms and matches the buy order with respect to sell orders. Opening price is fixed once the matching of the order is completed. But during this session buy orders and sell orders cannot be modified or cancelled.
Buffer Time
The 3rd segment is from 9:12 a.m. to 9:15 a.m. This segment is called the buffer window. In this segment no major activities are done by the stock market.
Advantages of Pre-Market Sessions
- Early Mover Advantage: Pre-market trading allows one to react to important news events that happen overnight, such as earnings reports, major company announcements, or global events. By placing trades before the regular market opens, can potentially capitalise on price movements triggered by this news.
- Gauge Market Sentiment: Pre-market activity can be an early indicator of how the market might react during regular trading hours. By observing pre-market order flow and price movements, one can get a sense of investor sentiment towards specific stocks or the overall market direction.
- Potential for Favourable Pricing: In some cases, pre-market trading can offer opportunities to enter or exit positions at more favourable prices compared to what might be available during regular hours. This is especially true if the pre-market price movements reflect a genuine shift in supply and demand.
- Reduced Order Execution Risk: For large institutional investors, pre-market trading can help them place sizable orders without significantly impacting the stock price during regular market hours. This can be crucial for managing large portfolios without causing unwanted market movements.
Post-Market Condition
Post-Market sessions take place after the closing of regular marketing sessions. It takes place from 3:40 p.m. to 4:00p.m.
Breakdown time of the Post trading sessions
Buffer period
It takes place between 3:30 p.m. to 3:40 p.m. During this period the closing price was calculated by taking the weighted average of the prices from 3:00 p.m. to 3:30 p.m. Here no orders can take place or modify the existing ones.
Post Market session
It takes place between 3:40 p.m. to 4:00 p.m. The exchanges conduct one final round of trading after determining the closing price. Buy and sell orders are accepted. Irrespective of what price one place the order, the order will always be placed at the “closing price”
- One can only place delivery type of orders
- No intraday orders are allowed can
- Only trade in the Cash segment
- No trading is allowed in futures and options
- Volumes are very low during this session
Advantages of Post-Market Session
- Limited Order Execution: For investors who missed opportunities during regular hours due to schedule constraints, post-market trading provides a window to enter or exit positions.
- Limited News Impact: Since most major news events occur during regular trading hours, post-market activity is less likely to be influenced by significant news catalysts.
- Responding to Late Breaking News: In rare cases, critical news might break after regular market hours. Post-market trading allows investors to react to such unforeseen events, although the limitations mentioned above still apply.
- Catching Up on Missed Trades: If you miss an opportunity to buy or sell a stock during regular hours, post-market trading might provide a last chance, but again, with the limitations of wider spreads and potential order fulfilment issues.
Risks in Pre-Market and Post-Market:
Limited liquidity and large bid-ask spreads: Compared to regular trading, when there are numerous dealers and investors, there are considerably fewer buyers and sellers of stocks in the pre-market. Pre-market trading volumes are therefore often a small portion of regular session volumes. Wide bid-ask spreads, increased volatility, and restricted liquidity are the outcomes of low trading volumes.
Price uncertainty: Prices of stocks traded in the pre-market may diverge significantly from the prices of those stocks during regular hours. Apart from the impact on stock prices from vastly differing trading volumes in pre-market and regular sessions, pre-market stock prices may only reflect prices from a single or handful of electronic communication networks (ECNs).
