Commodity Market - Beginners Guide for Commodity Market in India

Posted by Mehul Kothari | Published on 13 Aug 2019
Image
Commodity Market - Beginners Guide for Commodity Market in India

Commodity market in India has a great bearing on our routine lives. The prices of fuel, gas, things at the supermarket, jewellery, etc. are dependent on the prices of the commodities in the commodity market. Since there is a great significance of price change in the commodity on our routine lives, it suggests that commodity if rightly traded can give good returns. This provides an opportunity to the traders to trade in the commodity market and take advantage of the price movement to their benefit. In this article, you will learn about all the details that a beginner must know while entering into a commodity market in India.

Let us first learn the basic concept of commodity and its meaning.


What is a Commodity?

To define commodity in simple words, it is the material that is used as an input for producing refined goods. It is only because of the commodities that we are able to use the goods around us. Examples of commodities include copper, iron, aluminium, zinc, lead, crude oil, natural gas, gold, silver, steel, cotton, grains, pulses, etc.

After learning the meaning of commodity, let us now learn about the meaning of commodity trading.


What is Commodity Trading?

Commodity trading is very similar to stock trading. In stock trading, you purchase and sell shares of the companies, while in commodity trading you purchase and sell commodity products. The commodities are traded on the exchanges where traders look for making profits from the volatility in the commodity market by purchasing and selling them.

Let us now learn about the different types of commodity markets in India.


Types of Commodity Market

There are two types of commodity markets in India first are spot market and second are futures market. Spot market is a market where physical commodities are purchases and sold. E.g. Agriculture mandies. Futures markets are the market were commodities are purchases and sold in electronic form through various commodity exchanges.

In India, there are three major commodity exchanges where you can trade different commodity items. They are as follows:
• National Commodity and Derivatives Exchange – NCDEX
• Multi Commodity Exchange – MCX
• Indian Commodity Exchange – ICEX

From the above, MCX and NCDEX are the two most popular exchanges. On MCX, you can trade in metal and energy and on NCDEX; you can trade in agriculture products. ICEX is known for Diamond trading.

The commodities traded on these exchanges can be classified into four types.
• Energy – Crude oil, Natural gas
• Precious Metals – Gold, Silver, Platinum
• Base Metals – Aluminium, Copper, Lead, Nickel, Zinc, Steel
• Agriculture – Corn, Beans, Rice, Wheat, Pulses, Spices, etc.

Let us now learn who regulates the Indian commodity market.


Regulation of the Indian Commodity Market

The regulatory body of the commodity trading market is the Securities and Exchange Board of India (SEBI). Earlier, the Forward Market Commission (FMC) used to regulate the commodity market. But in 2015, FMC got merged with SEBI.

As a beginner, you must know how to trade in the commodity market. In the section of the article, we will learn all the details of how trading can be done in the commodity market.


How To Trade In Commodity Market

The best way to trade in the commodity market is through the futures contract. In a futures contract, there is an agreement to buy or sell a particular commodity at a given price at a future time. Future contracts are available for every commodity. The traders use the volatility in the price of the commodity to make profits. The beginners in the commodity market must begin with small trades so that they understand the risks well and get the experience of taking big trading positions in future.

Let us now learn about the advantages of commodity trading in the futures market for beginners.


Advantages of Futures Market in Commodity Trading
• The volume of trade in the future market is good which makes future contracts very liquid in nature.
• When the trade is taken carefully, the future contracts can give you huge profits.
• The targets in the long or short future contracts can be easily set.
• Futures contracts are highly leveraged investments.
• They are affordable as they require minimum deposit to open an account and in return, you get control over full-size contract.

Let us now learn how to choose a commodity broker in the commodity market.


How to Choose a Commodity Broker?

Your entire experience in the commodity market will depend upon the broker you select. The commodity market has grown significantly over the past few years and there are numerous brokers present in the market.

While selecting a commodity broker, you must check their credibility and past experience. Another important aspect that you need to check is the charges that the broker quotes and services offered by them. Also, the broker must have a proactive customer support team. This is because whenever you face any problem or snag, it can be addressed immediately. Moreover, it is advisable to compare the different brokers and select the one who provides the services at the most affordable rates.

Let us now learn how to open a commodity trading account.


How to Open Commodity Trading Account

After selecting the broker of your choice, the next thing to do is open the commodity trading account. You must follow the below mentioned steps for successfully opening your account.

  • The first thing to do after the selection of the broker is to fill the account opening form. These forms are available on the broker's website and can be obtained from their offices too.
  • The next step involves the submission of the necessary documents that include PAN card, ID proof, address proof, cancelled cheque and income statement.
  • Now the broker will conduct a verification process to check whether the information submitted by you is correct or not.
  • On receiving the approval from the exchange, the commodity account is opened. The beginners get the information about their account number, password and other necessary details.
  • On the opening of the account, you must submit the deposit margin money. The initial margin money is as low as 5%-10% of the total contract value. Apart from the initial margin, the maintenance margin also needs to be maintained by the account holder.


Trading in the commodity market can change your fortune. The sky is the limit to make money in the commodity market. Just follow a disciplined approach and you can be a successful commodity trader.

If you are looking to open a commodity trading account, you can consider IndiaNivesh Commodities Private Ltd. We provide the best services at the most affordable rates. Our in-house experts and analysts give you the right guidance for the next trade that you should take. For further information, you may get in touch with us via email or call. We will be glad to serve you.




Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

PREVIOUS STORY

Mutual Fund Investment - Best Mutual Fund to Invest in 2019

Mehul Kothari द्वारा पोस्ट | 13 Aug 2019 को प्रकाशित |

Mutual funds are one of the most popular investment options available in the market. Most people prefer investing their savings in mutual funds because they have the ability to generate good returns over a longer horizon. You can regularly invest your savings into the mutual fund's schemes through Systematic Investment Plan (SIP) or a lump sum amount. However, to do so you must be aware of the top performing mutual funds in India. To help you in overcoming the confusion of selecting top mutual funds, we have listed down top mutual funds to invest in 2019.Top Performing Mutual Funds In India in 2019Let us now learn the factors that you must consider to select top mutual funds.Factors to Consider Before Investing in Mutual Funds • Performance of FundThe performance of the fund is critical for the selection of any top mutual fund scheme. The performance tells you about the returns generated by the scheme over the years. You must ensure that the performance of the fund is taken over a long period so that you can make a better judgment and decision. Also, review the holdings of the fund in the past years. Check the risks that the fund is exposed to. By doing all these checks you will get a better idea of the fund’s performance. • Fund Manager’s ExperienceThe experience of the fund manager plays a critical role in generating returns. The fund manager manages the capital of the mutual fund schemes and invests in the direction the market is moving. A good fund manager ensures that the mutual fund scheme is reliable for the long term. The mutual fund scheme can perform well only if the fund manager has the expertise and experience. Therefore, before putting your hard earned money into any top mutual fund, always consider the experience of a fund manager. • Expense RatioThe expense ratio is the fee that is charged by the AMC when you purchase their mutual find scheme. It is the charge for management, distribution, administration and promotion of a mutual fund. SEBI (Securities and Exchange Board of India) has capped these charges at 2.25% of the total fund assets. It is always recommended to purchase that mutual fund scheme which has a lower expense ratio. • Exit LoadExit load is a charge that is applied to the NAV of the mutual fund. It dents your investment value when you sell your units. The mutual fund schemes that charge lower exit load should always be considered as the first choice for investment. Since the exit load charge is applicable whenever you sell your mutual fund units, it is advisable to hold mutual fund units for the long term and reap its real benefits rather than exiting in the shorter period. • Track Record of Asset Management Company (AMC)Asset Management Company (AMC) is the fund house that manages the mutual fund scheme. The decisions at an AMC are taken by the Chief Investment Officer (CIO). If any poor stock is a part of the AMC then it raises questions on the selection of stocks done at the AMC level. Therefore, it is always recommended to track the past record of an AMC before investing in any of the top mutual fund schemes. • Integrity of Fund’s PromotersBefore investing in the mutual funds, it is important to understand who the promoters of the mutual fund are? You must look at their record in the financial service domain and experience. Securities and Exchange Board of India (SEBI) grants the permission to run a mutual fund only to people who have integrity, experience in the financial service sector and fulfils the criteria of minimum net worth. Even after that, it is important for you to check their background for your own satisfaction. The above mentioned are a few factors that you must consider before buying a top mutual fund scheme. Whether you are a beginner or a seasoned investor, you must be always active and alert while making an investment in the mutual fund scheme. To make things easier, you may invest in mutual fund through IndiaNivesh Ltd. Our in house experts understand your financial goals before suggesting you the apt mutual fund scheme.  Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

अधिक पढ़ें

NEXT STORY

Futures & Options - 4 Things to Avoid while Trading in Futures and Options

Mehul Kothari द्वारा पोस्ट | 19 Aug 2019 को प्रकाशित |

For many investors, the next gradual step after mastering the stock markets is venturing into the derivatives segment. Derivatives consist of two key products in India – Futures and Options. However, trading in these can be a tricky business and one can go wrong on many counts. But before we warn you of the pitfalls that you need to be careful of, it is important to know what are futures and options. Correct understanding of futures and options plays an important role in making the best out of investments in this segment. Read on to understand the nuances of the F&O segment and how to trade in futures and options. Similarities between futures and options Both futures and options belong to the family of derivatives. For the uninitiated, derivatives are financial contracts whose value is derived from an underlying asset (such as securities) or a group of assets (benchmarks such as indexes). Other examples of underlying instruments are bonds, commodities, interest rates, stocks, etc. They are trading products which offer the investor a chance to make profits and hedge their current investments Both futures and options trading happens in the stock market. Difference between futures and options The major difference between futures and options lies in the obligations or rights of the involved parties. In the case of options, the holder of the contract has the right to purchase (or sell) the underlying financial instrument or asset at the pre-determined price. However, he or she is not obligated to do so. The seller, on the other hand, needs to compulsorily perform their part if the holder chooses to exercise his or her option. In simple words, the holder has an “option”. In the case of a futures contract, both parties have an obligation to fulfill their part of the contract on a specified date in the future at a pre-determined price. In terms of risk, futures are riskier than options. The holder of the futures contract is obligated to buy on the future date at the fixed price even if the security moves against him or her. However, in an options contract, the holder can choose not to no go through if the security price does not move as per his/her expectation. There is an advance payment involved with options contract. The holder of the contract has to pay an amount or premium to get the right to buy or pass in the future. In case the contract holder chooses not to exercise the right, he/she will lose this upfront payment amount. No such charges are there in a futures contract as both the parties need to honor their obligations on a certain date. In the case of a futures contract, the transaction takes place on a pre-determined date.  Futures and options may be conceptually different but their core principle is the same. They provide a chance to make a profit from an index, stock or any other underlying asset without investing the entire sum.  Understanding future and options Now that you know the difference between futures and options, you might think that you are all set to venture into this segment. However, before you do that it is important to understand some important facts about futures and options Futures and options are traded on the stock market. The F&O segment contributes to the maximum trading volume across stock exchanges in the country. The calculation of profits (or losses) is done daily till the time of sale or contract expiry. Unlike the equity market, derivatives come with an expiration date. There are hidden costs involved in the F&O segment. These include brokerage, stamp duty, GST, STT, etc. Options contracts are asymmetrical. In case the price of a stock goes down, the buyer's loss is restricted to the amount of premium paid. However, the seller's loss is limitless potentially. Trading in options is possible even when one is unsure about the market’s direction. One can combine futures and options to trade markets in such situations. One of the USP of the F&O market is the flexibility to choose a non-directional strategy. Things to avoid while trading in futures and options If you wish to trade in futures and options, there are some mistakes you need to steer clear of. Futures Trading Use futures as a trading proxy: This is one of the biggest (and most common) mistakes made by investors in the F&0 segment. The power of leveraging works both ways – in your favor and against it. Futures have the potential for unlimited profits as well as losses. So, one should not get lured by the possibility of exponential profits without considering the impact of losses. Ignore the stop/loss feature: Many people do not make effective use of this important feature. The stop/loss feature is a great risk management tool. One must remember that leverage is a double-edged weapon. It can help as well as hurt. It is important to maintain a disciplined and rigid stop/loss target at the time of trading. On earning the set or desired profit, one must use this feature to exit from the futures position. Sell if another institution is doing so: A big part of the future trading is to create a cash-future arbitrage. Hence, do not start selling your future contracts just because some other institution is doing so. It might be trying to create a position of arbitrage. Following the herd is not a wise way of trading in the F&O segment. Options Trading  Get attracted by cheaper-priced options: Naturally one would prefer low-priced options as the advance premium payment would also be lesser. However, in such cases, it is important to assess the intrinsic value of that particular option to determine if it is truly underpriced. Holding longs closer to the date of expiration: There are two factors that impact the valuation of options – intrinsic value and time value. As the date of expiry comes nearer, there is a sharp dip in the option price (if it is going to expire at zero value). Hence, timing your exit and setting the target return are crucial aspects to be considered in options trading. Else, one might end up making losses.    How to trade in futures and options Once you have a thorough understanding of futures and options, it is time to choose an intermediary for your trading purposes. This is a crucial step as the right partner can help you select the right investment opportunities and make the most out of your hard-earned money. IndiaNivesh is a great choice for all your financial needs. With a rich experience of more than a decade, it offers best-in-class and customized services to its customers. Its in-depth understanding of the market combined with cutting-edge technological tools enables them to support customers holistically. Their long list of recognitions stands testimony to the passion and excellence they display in the financial world. So, make the right choice of partner and keep it simple. Futures and options are not rocket science once you understand their nuances. Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

अधिक पढ़ें

Are you Investment ready?

*All fields are mandatory

related stories view all

  • Financial Markets - Overview, Structure, and Types
    Posted by Rushabh H. Mehta | Published on 06 Mar 2020

    What is Financial Market? A market is defined as a place where goods and services are bought and sold. Along similar lines, a financial market is one where financial products and services are bought and sold regularly. Financial markets deal in the purchase and sale of different types of investments, loans, financial services, etc. The demand and supply of financial instruments determine their price, and the price is, therefore, quite dynamic. Financial markets form a bridge between investors and borrowers. It brings together individuals and entities that have surplus funds and those who are in a deficit of funds so that funds can be transferred between them. This transfer of funds is done through different types of financial instruments that operate in the financial markets. Structure of the Indian financial market The Indian financial market is divided into two main types – the money market and capital market. The capital market is further sub-divided into different types of financial markets. Let's understand –   Let’s understand each type of financial market in details – Money market The money market is a marketplace for short-term borrowing and lending. Securities that have a maturity period of less than a year are traded on money markets. The assets traded in money markets are usually risk-free and are very liquid. Since the maturity period is low, the risk of volatility is low, and the returns are also low. Money market instruments are debt oriented instruments with fixed returns. Some common examples of money market instruments include Treasury Bills, Certificates of Deposits, Commercial Papers, etc. Capital market Contrary to the money market is the capital market, which deals in long-term securities. Securities whose maturity period is more than a year are traded on the capital market. Capital market trades in both debt and equity-oriented securities. Individuals, companies, financial institutions, NRIs, foreign institutional investors, etc. are participants of the capital market. The capital market is divided into two sub-categories which are as follows – Primary market Also called the New Issue Market, the primary market is that part of the capital market, which is engaged in the issuance of new securities. The newly issued securities are then purchased from the issuer of such securities directly. For instance, if a company offers an IPO (Initial Public Offering) and sells its shares to the public, it forms a part of the primary capital market. Investors directly buy the shares from the company, and no middlemen are involved. Similarly, if an already listed company issues more shares, called Follow-on Public Offerings (FPO), such shares can be bought by investors directly from the company. Secondary market The secondary capital market is where the securities bought in the primary capital market are traded between buyers and sellers. Stock trading is a very common example of a secondary capital market wherein investors sell their owned stocks to interested buyers for a profit. A secondary market is characterised by an intermediary and the trading of securities takes place with the help of such intermediary. While securities in the primary market can be traded only once, securities in the secondary market can be traded any number of times. The stock exchange is a part of the secondary market wherein you can trade in stocks of different companies that have already been offered by the company at an earlier date. Other types of financial markets Besides the above-mentioned types of financial markets, there are other types of financial markets operating in India. These include the following – Commodity market This market deals in the trading of a commodity like gold, silver, metals, grains, pulses, oil, etc. Derivatives market Derivative markets are those where futures and options are traded. Foreign exchange market Under a foreign exchange market, currencies of different countries are traded. This is the most liquid financial market since currencies can be easily sold and bought. The rate fluctuations of currencies make them favourable for traders who look to book profits by buying at a lower rate and selling at a higher one. Bond market Bond market deals in trading of Government and corporate bonds, which are offered by Governments and companies to raise capital. Bonds are debt instruments that have a fixed rate of return. Moreover, bonds also have a specific tenure, and the bond market is, thus, not very liquid. Banking market The banking market consists of banks and non-banking financial companies which provide banking services to individuals like the collection of deposits, the opening of bank accounts, offering loans, etc. Financial market and services The services offered by financial markets today are as follows – They provide a platform for buyers and sellers to trade on financial products The financial market determines the price of financial instruments traded on it. This price is based on the demand and supply mechanism of the instrument and can move up and down frequently The market provides liquidity to investors when they need to sell off their investments for funds The market provides funds to borrowers when they need financial assistance The Indian financial market is influential in the economic growth of India as a whole The financial market helps in mobilization of funds from investors to borrowers Thus, the financial market and its services are varied, and that makes the financial market an important component of the Indian economy. Regulators of financial markets Financial markets and services offered by them should be regulated so that the participants of the market follow the laws of trading. As such, there are different regulators of the market that ensure that all participants trade fairly. These regulators are as follows – Reserve Bank of India RBI is the regulator for banks and non-banking financial companies. It is the central bank of India entrusted with the formulation of monetary policies, credit policies, and foreign exchange policies, among others. Banks and financial institutions have to abide by RBI's rules and regulations to work in the financial market. Securities and Exchange Board of India SEBI is the primary regulator of the capital market, which consists of both the primary as well as the secondary capital market. Trading done in the capital market is governed under SEBI's rules and laws. Insurance Regulatory and Development Authority IRDA governs the rules and regulations which are to be followed by insurance companies and their intermediaries. Thus, IRDA is a regulator of the insurance market, both life, and general insurance market. Financial markets today have evolved and have become quite competitive with the participation of multiple players. They directly play a part in the growth of India's economy and allows investors and borrowers to trade in financial products and services in an easy and smooth manner. To take advantage of the Financial markets and varied investing opportunities, consider the team at IndiaNivesh, which is well-versed with types of markets and regulatory bodies.   Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

    read more
  • SIP – Different Types of Systematic Investment Plans in India
    Posted by Mehul Kothari | Published on 15 Jan 2020

    Mutual funds now are a household name and building a mutual fund portfolio is synonymous with wealth creation. As the mutual fund industry continues to grow leaps and bounds, SIPs are considered one of the key growth drivers for this industry. SIPs help the investors to invest in a systematic and disciplined manners. Online SIP investments starting with Rs 500 per month (for few schemes min SIP amount is as low as Rs. 100 per month); digital distribution and hassle-free onboarding of investors, all have resulted in making an investment for SIPs most favoured investment option. To stay relevant with times and improvise their offerings, AMCs now offer many different types of SIP so that investors can choose the most suitable type of SIP for investment best suited to their individual needs and profile. Here are the different types of SIP investment available for investors- 1. Regular SIP One of the simplest and easiest forms of SIP investment is a regular SIP, wherein you invest a fixed amount at regular intervals. The time interval can be monthly, bi-monthly, quarterly or semi-annually. You can also choose daily or weekly SIPs, though it is not recommended in most cases. When you make your first SIP payment, you are required to choose your desired time interval, amount of the SIP and the tenure of the SIP. In a regular SIP, you cannot change the amount during the tenure of the investment. If you are a salaried employee, choosing a monthly SIP, usually in the first ten days of the month, once your salary is credited to your bank account is highly recommended. 2. Step-up SIP Without a doubt, SIPs help brings about financial discipline in your life. Over time, as your earnings increase, it is important to increase your investments as well so as to keep them aligned with your income level and financial goals. A step-up SIP, also termed as a top-up SIP, is an automated solution to increase your SIP contribution either by a fixed amount or a fixed percentage after a specific time. Using Step-up SIPs will help you reach achieve your goals faster and also help in long-term wealth creation. 3. Flexible SIP For investors with irregular income, even after being well aware of the benefits of SIPs, the biggest reason for not starting a SIP is not being able to keep up with the fixed periodic investments. A flexible SIP is a perfect solution for such investors as it gives the flexibility to start, pause, decrease or increase your SIP. Depending on your flow of funds, you can change the SIP amount seven days before the SIP date. In case, there is no intimation of change, then the default amount entered is deducted for the SIP. 4. Perpetual SIP Normally, when you choose a regular SIP, it has a fixed tenure, with a starting date and an end date. But, if you are unsure about how long you want to continue the SIP, you can opt for a perpetual SIP. In case of a perpetual SIP, you leave the end date column blank and you can redeem your SIP once you have reached your financial goal. If you opt for a perpetual SIP, then it is important that you monitor the returns of your investment, to keep a track of the fund’s performance over time. 5. Trigger SIP A trigger SIP is for seasoned investors, who have sound knowledge of the financial markets and are accustomed to tracking the market performance daily. Using a trigger SIP, an investor can choose an index level, a particular event or NAV to start the SIP. An investor can set trigger points for upside and downside conditions and can redeem the amount on achieving the pre-specified target. Investors can oscillate their investments between debt and equity schemes within the same fund house. A trigger SIP is recommended only for investors who have a thorough understanding of financial markets. 6. SIP with Insurance Insurance is an important part of financial planning. In order to make mutual fund offerings more lucrative, certain fund houses offer free insurance cover if you opt for SIPs with a longer duration. The initial cover is usually ten times the first SIP and gradually increases over time. This feature is only for equity mutual fund schemes. The term insurance offered is just an add-on feature and does not impact the performance of the fund. 7. Multi SIP The multi-SIP enables starting SIP investment in multiple schemes of a fund house through a single instrument. This facility can help investors to build a diversified portfolio. Investors can start SIP in various schemes using a single form and payment instruction, thereby reducing the paperwork involved.   CONCLUSION Over the last few years, SIP returns have earned investor confidence and are the most preferred investment option of retail investors. If you are unsure on how to choose the right SIP for you and want correct guidance, then consult our expert financial advisors at IndiaNivesh for best-suited SIPs for investments.

    read more
  • Know What is Pre-Market Trading & How it Works in Share Market
    Posted by Mehul Kothari | Published on 21 Nov 2019

    Most of us are aware that trading takes place on the stock exchange between 9.15am and 3.30pm. But what if we told you that it is only partially correct. Some trading (though low in volume) also takes place during the extended trading hour periods. Read on to know about more about this additional trading window and its significance. What is Pre-Market Trading Pre-market Trading is a global phenomenon and refers to trading that takes place before the usual trading hours. The usual trading hours for Indian stock markets is 9:15 am to 3:30 pm. Pre-open market stock trading is a special trading window of 15 minutes prior to the start of the working hours for the stock markets. Hence, the time frame between 9:00 am and 9:15 am is considered as the pre-open market session. This feature was first introduced by NSE and BSE in October 2010. The objective behind a pre-market trading It was observed that there was tremendous volatility in the first couple of minutes of trading hours. The core objective behind having a pre-market trading session is to stabilise the market especially when heavy volatility is expected due to some overnight major events or corporate announcements. These could be election results, reforms or new economic policies, declaration of mergers and acquisitions, delisting of shares, open offers, change (especially downgrading) in credit ratings, debt-restructuring, market rumours etc. The additional 15 minutes allows the stock markets to arrive at the right premarket stock price and not get carried away by external events or announcements. In India, premarket future or options trading is not permitted. Pre-market Trading Session – Breakdown of the 15 minutes The premarket trading period can be further bifurcated into three slots:Order Entry or CollectionThe Order Entry session starts at 9:00 am and lasts for eight minutes. The following activities are undertaken during this timeframe Placing of orders for purchase or selling of stocks Changes or modification in orders Cancellation of orders After 9:08am (i.e. completion of order entry session), orders are not accepted by the stock markets Order MatchThe Order Matching session starts at 9:08am and continues for the next four minutes. The following activities are undertaken during this timeframe Confirmation of orders placed during the Order Entry session Order Matching Calculation of stock opening price for the regular session that starts at 9:15am During the Order Match session, one cannot buy, modify, cancel or sell their orders. Limit orders (i.e. order quantity and price is specified) are given priority over the market orders (order quantity and price are not specified) during the execution time. Buffer TimeThe last three minutes of the premarket trading session (i.e. 9:12 am to 9:15 am) is considered as buffer time. This period is used to ensure a seamless transition to regular trading hours. Any abnormalities from the previous two slots are addressed during this time.   Calculation of Opening price during the pre-market stock trading session The opening price of the stock during this session is determined during the second phase i.e. Order Match session. It is done with the help of a specific methodology. This calculation method is referred to as the call auction methodology or the equilibrium price. The stock price which corresponds to the maximum quantity of tradable shares is known as the equilibrium price. It is a factor of demand and supply. The orders placed during the first eight minutes are matched at the equilibrium price and then traded accordingly. Some scenarios: If the highest tradable quantity corresponds to two different stock prices, then the stock price with the lower unmatched orders is taken as the equilibrium price. For example:   Stock Price Order (Buy) Order (Sell) Demand Supply Max Tradable Quantity Size Unmatched Orders (Demand minus supply) 105 1275 1160 25000 20000 20000 5000 99 2000 8000 20000 30000 20000 -10000   Though the maximum tradable quantity is same in both the cases, the equilibrium price will be considered as 105 as it has a minimum unmatched order size If the values of the highest tradable quantity and unmatched orders are same or equidistant, but they correspond to two different stock price, then the above methodology cannot be applied. In this case, the equilibrium price is taken as the stock price which is closer in value to the closing price of the previous day. For example, Stock Price Order (Buy) Order (Sell) Demand Supply Max Tradable Quantity Size Unmatched Orders (Demand minus supply) 105 1275 1160 25000 20000 20000 5000 99 2000 8000 20000 25000 20000 -5000 Assuming the closing price on the previous day was Rs. 110, then the equilibrium price in the above example will be Rs. 105.   What about orders that remain unmatched or are not traded in the pre-open session? Orders that are not traded or remain unmatched are carried forward to the general trading session. The opening price of these orders is determined in the following manner: Limit Orders i.e. orders wherein the price and quantity are already specified are carried forward at the same mentioned price Market Orders i.e. orders wherein the price and quantity are not specified are carried forward at: If the opening price was ascertained during the pre-open trading session but order not traded, then at the determined price If the opening price was not discovered, then they are carried forward at the previous day’s closing price   Stock Markets tend to be overwhelming for many investors. The concept of premarket trading can further compound the complexity level. However, as an investor, you should always remember that help is just around the corner. Professional experts like IndiaNivesh can help to simplify and demystify the entire process. The team at IndiaNivesh keeps a close eye on this Pre-market session to comprehend the mood and strength of the stock market. They track the pre-market stock prices and take the best decisions for your portfolio basis the market sentiments. Moreover, since they offer a wide range of services (broking, mutual funds, institutional equities, private equity, strategic investments, corporate advisory, etc.) they have a holistic view of the market and the economy. Their expert opinion can help you to amp up your investment game. You can read more about their offerings, vision and accomplishments on their website https://www.indianivesh.in/Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."

    read more