by Oct 5, 2021 | Investment Basics | 20 comments
If you are new to the stock market, you might not know how is the opening price of a share determined? Why does the stock open at a specific price which is higher or lower than the previous day closing price? What determines this opening price if the stock market is closed.
The Indian stock market works for five days from Monday to Friday. The normal trading session is between 9:15 AM to 3:30 PM in both the major stock exchanges of India- BSE, and NSE. However, before the normal trading session, there is a small pre-opening session from 9:00 AM to 9:15 AM every day. This is the period when the opening price of the shares is decided.
But what exactly happens during this period? And how is the opening price of a share determined?
This is what we are going to discuss in this post. Today we are going to discuss how is the opening price of a share determined. But before we discuss it, there are few basics that you need to know first.
Table of Contents
There are two types of orders that you can place for a buying/selling of shares in the share market:
The market order is instantaneous whereas limit orders occur depending on the fulfilment of supply and demand.
The pre-opening session is divided into three segments- The order collection period, order matching period, and buffer period. Let us understand each one of them in detail now.
Also read: Stock Market Timings in India
The opening price of the share is determined during the call auction. As soon as the order collection period is over, the order matching period starts.
The order matching happens in the following sequence:
Now, let us understand how the opening price is decided with the help of an example.
Assume that during the order collection period, following demand (buy orders) & supply (sell orders) were available for different stock prices for a company named ‘ABC’. I had customized a simple table for easy explanation.
Here, you can notice that there are different quantities of demand and supply of stock for different share prices (based on the buy and sell order placed).
The opening price is determined based on the principle of demand and supply mechanism. It occurs at the equilibrium price, where the maximum volume (tradable quantity) is executable.
In the above example, the maximum tradable quality was possible at a share price of Rs 102. Hence, Rs 102 will act as the opening price for the share.
All the outstanding orders, which are not executed in the pre-opening session, will move to the normal market session.
Quick Note: The above table is created in a simple way to let you understand the basics. However, in real-time scenarios, there will be tons of volume of buy and sell orders, making it quite complicated.
The equilibrium price determined in the pre-open session is determined as the opening price for the share.
That’s all for today. I hope this post on ‘How is the opening price of a share determined?’ is useful to the readers. If you have any doubts, feel free to comment below.
Also read: How to Invest in Share Market? A Beginner’s guide
Hi, I am Kritesh (Tweet me here), an NSE Certified Equity Fundamental Analyst and an electrical engineer (NIT Warangal) by qualification. I have a passion for stocks and have spent my last 4+ years learning, investing and educating people about stock market investing. And so, I am delighted to share my learnings with you. #HappyInvesting
Thanks for post Kritesh. Awesome work buddy..
You are welcome Gokulnath.
While placing purchase order in pre opening session, what needs to be kept in mind while placing purchase price
Sir one broker suggests me see LTP and match them with opening price after watching data of company for 3 months if opening price is higher then LTP then u buy that stock.Sir I really like ur tips and I have’nt yet started Please Can u give me advice if he is saying true or just luring me
No I haven’t sent anything like this before
Hi Kiran. I don’t think that’s a good idea. It’s neither based on a fundamental or technical analysis. If you want to make consistent money from stocks, then you need a strong strategy, not some one-time trick!!
Who will provide us strong strategy
It is more informative for me
what happens when i ordered for a share at price 102 during the pre opening session.
Your order will be executed successfully at 102 with no change to the opening price of the stock.
hi dear nit warangal aluminous, nice info provided, how can we reach you, so many doubts, how come all stocks go up or down with sensex
Hi. You can reach me out over email at email@example.com
Nicely explained .. Thank you, sir
Great. As we know that it is demand and supply. And lets us 102 is the normal price…opening price started with 110. So how that 8 rupees increased? On what basis that was decided? Any calculation? Example? Demand would be more than the supply but how its calculated?
Is it possible to identify open price before 9.15
The explanations are straight forward and simple. Thanks for your efforts.
I did not understand above table, how is it come maximum tradable quantity
Sir we buy it on 101 so my order will execute?
accha laga ye baat jankar.
Nice explanation… great job
If some big shot with lots of money place both buy and sell order of huge amount, he/she can manipulate the opening price very easily. Is that possible?
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by Oct 5, 2021 | Investment Basics | 20 comments