Bear Market Investment – How to Invest in a Bear Market

Posted by Mehul Kothari | Published on 08 Nov 2019
Image
Bear Market Investment – How to Invest in a Bear Market

The stock market has been one of the favourite investment options for many investors. It passes through three major phases; bull phase, bear phase and consolidation phases. Making an investment in the bear phase is one of the trickiest tasks. This is because there is widespread pessimism in the market and the stocks keep making new lows. Therefore, to survive in a bear market, you must have good bear market investing strategies. In this article, you will learn how to make bear market investment.

Let us first learnt the reason for bear markets.

Reason for Bear Markets

There are many triggers that take the markets into a bear phase. The global factors are the most common causes of it. And, a bad shape of the domestic economy further adds to the market woes. If we look into the history, unrest in the Middle East which affects the oil prices has always been a major reason for markets entering into the bear's grip. Moreover, instability in any part of the world also affects the stock market in some way or the other. Making bear market trading strategies in such a market can be tough because you cannot predict how worse the situation can go. Similarly, a fall in GDP of a country is another reason for bear markets. The slowdown in the economy leads to lower consumption and expenditure by the people. Here the market remains in bear mode until the economy shows signs of revival. Other factors that contribute to bear markets are double-digit inflation rates, unfavourable monetary policies, unstable political environment, etc.

In order to counter these situations, you need to have solid investment strategies. So, let us learn about the strategies that can give you good returns during the bear market investment.


Strategies for Bear Market Investment

  • Purchase Index Funds

When the market enters into a bear mode, purchasing index funds at lower valuations can be very fruitful. The index funds replicate the performance of the index like Nifty or Sensex. Buying index funds can be one of the good bear market investing strategies because when the market will start rising you can make huge returns. Like for example, people who bought index funds during the recession in 2007-2009 and hung in there made huge profits in 2015. So the best way to purchase them would be to keep investing a small amount at every lower level rather than purchasing them at one go.

  • Buying Short and Long Term Puts

You can make bear market trading strategies in the derivative segment to make profits in the bear market. When you feel that the market is entering into a bear phase and there are many long positions still existing, you can purchase short and long term puts on the indices. When you purchase puts and the market declines, you will make good gains with it. The options market move by a much larger percentage in comparison to the stocks, so even small put contract can give you huge returns and compensate for your losses in the long positions. These contracts need to be settled before the expiry period.

  • Selling Naked Puts

Selling naked puts is another strategy to tackle the bear markets. When you sell the puts that others want to buy for premium is called naked put selling. There are always many buyers in the bear market and you can sell them a put contract. Here, you make a profit of the entire premium amount if the put contract expires at similar or above the strike price. Therefore, the best strategy in the derivative segment during a bear market would be to keep selling short-term puts of good companies.

  • Find Stocks That Perform Better

During the bear market, the stocks trade at low prices. In fact, with the fall many good companies are available at very cheap valuations. Therefore, to take advantage of lower prices you must make bear market investing strategies by purchasing good companies for the long term. By holding stocks of good companies for the long term, you can create huge wealth for yourself. Furthermore, there are many stocks that do well in the bear market, all you need to do is research well and figure out such stocks. Purchasing stocks that are outperforming the market can help you make good profits even in the bear market.

After understanding the strategies for a bear market, there are few more other things that you must do or be aware of in the bear market, they are as follows.


Things to Consider in Bear Market

  • A bear market is unavoidable and it is one of the phases of the stock market. When there are good times in the market, there would be bad too. Just remember the fact that good time will always outweigh the bad in the long run.
  • Always balance your portfolio in the bear market. Allocation in the right assets or stocks is the key for good returns in the long term. Most successful investors make an investment in the bear phase and sell in the bull phase.
  • Avoid margin trading during the bear market. Margin brokers allow you to trade more than you could potentially but you must not fall into the trap. The bear market is so powerful that it can wipe out your whole capital by way of margin payment. The best strategy in bear market is to purchase stocks and hold them for long period.
  • There is always a temptation to short sell in the bear market. You need to control that urge because when you short sell a stock you hope to purchase it back at a lower price. But the market does not guarantee anything. It is very much possible that the stock price would rise after you short sell and hence, you must avoid it.
The above mentioned are a few things that you must do or be aware of in the bear market. However, if you want to seek the help of an expert to make an investment in any type of market, you can contact us . We aim to protect your capital and help you earn profits with systematic investment under the guidance of our highly qualified experts.







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

PREVIOUS STORY

Commodity Investment – Reasons to Invest in Commodity Market

Posted by Mehul Kothari | Published on 07 Nov 2019

The world of investments has a vast number of financial instruments such as shares, stocks, bonds and many more. Commodities, too, are one such investment option available for investment. Even though the commodity market has grown substantially in the last few years, the participation of retail investors in commodities is still limited. However, the commodity market has huge potential and making the right investments in commodities can help improve the performance of your portfolio. What are commodities? Commodities are tangible goods that are either naturally occurring or can be agriculturally grown.  Commodities are consumed directly or used as raw materials for manufacturing finished goods meant for public consumption. All commodities can be classified under either of the two categories- Soft commodities- Those, that are grown and cannot be stored for an extended period. Examples of soft commodities include agricultural products such as grains, tea, coffee, and livestock. Hard commodities- Those, that are obtained through mining and extraction. Example of hard commodities includes oil, metals and natural gas. Why should you invest in the commodities market? Commodities play an important role in the development process and hence are building blocks of every economy. Commodity investments can help you diversify your portfolio into a different asset class apart from shares and bonds and enhance the overall returns of your investments. For many of you, the general perception is that the commodity market is complex and hence not something that everyone can dabble into. However, commodity investments can fetch you handsome returns.  Here are the top three reasons to invest in commodity markets for all types of investors-1. To diversify your portfolio  One of the key factors that determine the success of your financial planning is diversification. Diversification with regards to investment portfolio means investing in various assets that are not correlated to each other of your portfolio in different asset classes. Most of you would be diversifying your portfolio in five major asset classes which include cash, shares, fixed income securities, real estate, and gold. In times of increased volatility in the markets, you are either holding on to cash or investing in gold. Gold is considered the safest haven for investment in turbulent times and Indians tend to invest in gold because it is considered as a symbol of wealth and has ornamental value. However, in reality, the gold in your portfolio is your investment in commodity and just like all the other commodities the returns from it are independent of the returns generated by stocks and bonds. Just like gold, there are other commodity investments whose returns are not correlated to equities and bond markets. The price of any commodity investment is a function of demand and supply and by doing proper research and analysis you can make profits from commodity market investments.2. To provide a hedge against inflation Inflation is the general rise in the price of goods and services over time. For any investment to be fruitful, it is important that the returns generated beat the rate of inflation.  Higher inflation effectively erodes the real returns generated by your investments in stocks and fixed income securities. However, in the case of commodities, higher inflation relates to the higher price of commodities. So, unlike other investments, your commodity investments will result in a strong performance when inflation is high. Given the current situation when inflation is constantly on the rise, investing in commodities will provide a hedge against inflation.3. To improve potential returns The prices of individual commodities can fluctuate significantly due to several factors such as demand and supply, the impact of natural calamities, exchange rates and the economic health of the nation.  The rise in infrastructure projects in a developing country like ours and also globally has had a positive impact on commodity prices. As the commodity market is still an untapped arena, many of them are trading at a lower price than their actual potential. Proper research and effective implementation of investment strategy in commodities can help investors improve the overall returns on their portfolio. What are the various options to invest in commodities? The commodities market is a very deep market and investors have many investment vehicles to access it.  Let us look at the various options available for investors to buy and sell commodities1) Investing in the physical form Commodities such as gold, silver, etc., are bought by investors in physical form.  However, not all commodities can be bought in physical form as it has its drawbacks of storage and spoilage. Even in the case of precious metals security and insurance increase the cost of your investment. Moreover, most of the time you want to invest in a commodity, not for end-use but to make profits if you anticipate that the price will increase. So, buying a commodity in physical form, except for precious metals, is generally not recommended for retail investors.2) Investment through commodity futures One of the most common ways to trade in commodities is through a commodities futures contract. It is a standardised agreement to buy or sell fixed quantities of the underlying commodity at a predetermined price on a specific date as mentioned in the contract. Also, commodity trades happen electronically through commodity exchanges where investing real-time commodity is possible.  Multi Commodity Exchange of India (MCX), National Commodity and Derivatives Exchange (NCDEX) are two of the many commodity exchanges present in the country which help investors trade in commodities. All the commodity exchanges come under the regulation of the Forward Markets Commission (FMC). 3) Commodity ETFs Commodity ETFs are another popular investment option available for retail investors to diversify their holdings in commodities. Commodity ETFs invest in a single commodity and physically hold and store it, invest in a commodity futures contract or invest in a commodity index that tracks the performance of multiple commodities. Investors can invest in commodity ETFs electronically in their Demat account. 4) Commodity Stocks Investors who are not comfortable with investing in commodity futures or ETFs can diversify their portfolio in commodities is by investing in commodity stocks. Commodity stocks are stocks of those companies which are directly or indirectly related in the manufacturing process of the commodity and hence have a positive correlation with the commodity.  For example, if you feel that the steel prices are going to increase, then you can invest in the stocks of various steel companies listed on the exchange. 5) Mutual funds One of the biggest reasons for an investor to shy away from commodity investment is that commodity investments require a lot of time, knowledge and expertise to make the right investment choices. However, now SEBI has permitted mutual funds to invest in the commodities market through the exchange-traded commodities derivatives (ETCD) route.  Thus, retail investors can now participate in commodity markets in a structured manner through professionally managed mutual funds. Takeaway Commodities are a broad and diversified asset class that offers a great investment opportunity to investors. Given the high inflationary pressure and volatility in the markets, dedicating a small portion of your portfolio to commodities will help enhance the overall performance of your investments. Investing in commodities may look intimidating and you may feel a little hesitant to explore your options, but correct guidance from an experienced financial advisor can help you understand the nuances of commodity markets and make the right investment decisions as per your investment needs. Financial advisors at IndiaNivesh possess the requisite expertise and experience to help and guide you with investments in commodities markets.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

read more

NEXT STORY

Investing in Mutual Funds vs. Direct Equity Investment in India

Posted by Mehul Kothari | Published on 08 Nov 2019

The ultimate goal for each investor is the same – wealth creation! While the destination is the same, there are different routes that you can take to reach it. You can either invest in mutual funds or you can directly buy equity share or stocks from the open market. Each route has its set of pros and cons. In this article, we will analyse these two options and help you figure out which is the better route based on your requirements. Direct Equity Investment Direct Equity Investment is an active approach to investing. In this route, the investor takes the decisions regarding which stocks to invest in, when to buy/exit, etc. While investing in direct equity, brokerage charges are applicable when transacting via an intermediary. Direct equity investments are best done by those who understand the workings of the stock market and have time and capability to monitor and research individual stocks. Mutual Funds This is the passive approach to investing. Mutual Funds pool in money from a large number of investors and invest across multiple stocks/asset categories as per the scheme’s objective. The portfolio is managed by professionals who are equipped with the required knowledge and resources. Direct Equity vs. Mutual Funds – which route should you take? To answer this question, you will need to consider the below factors:1. Market Expertise Stock investments are not lottery tickets where you can invest in anything and then wait for your luck to work its charm. It requires a great degree of knowledge, analytical skills and experience to choose the right stocks for your needs. There are too many dynamics to be considered. If you have a thorough understanding of the markets (and economic factors impacting it), direct equity investments are ideal for you. On the other hand, if you are a novice, mutual funds should be your go-to channel. If you are not comfortable choosing which mutual funds to invest in, you can take the help of financial advisors as well.2. Time for research Studying, tracking and analysing the stock market and related economic factors is a time-intensive activity. If you feel that you can devote adequate time in analysing the markets and monitoring their investments, you should opt for Direct Equity. Else, you can go the mutual fund route. Mutual Funds corpus is managed by professional experts (fund managers) who are skilled and trained in that domain.3. Diversification The USP of mutual funds is diversification. They offer exposure to a wide range of stocks which form part of the portfolio. Even if you invest a small amount (let’s say Rs. 5,000), your money will be spread across multiple stocks. In the case of direct investments, you can purchase only a limited number of varied stocks. To achieve the same diversification level (as offered by Mutual Funds), you would need to have a higher investible corpus. It also depends on your risk appetite. If you are a conservative investor, mutual funds are a better bet as the risk is distributed. 4. Ownership Equity investments have dual benefits – capital appreciation and ownership rights. If you are someone who wants ownership rights of a company, then you should go for direct investing. You will be eligible to attend shareholders meeting, get voting rights, etc. With mutual funds, you will not get these privileges as the shares are held indirectly.5. Control When you invest via the mutual fund route, you have no say or control in the stock selection. That is at the discretion of the fund manager. So, even if you have good reason to believe that a particular stock is going to fall, you will not be able to take any action. However, if you opt for direct stock investments, you are your own fund manager. You get complete control over the buy or sell decisions. You can exit from single stocks, which is not possible with Mutual Funds.6. Taxation Some Mutual Funds (ELSS) qualify for deductions under Section 80C of the Income Tax Act. However, no such benefit is available with direct stock investments.7. Exit Load In direct equity investments, there is no exit load. However, in case of mutual funds, if you exit the scheme before the holding/ lock-in period, you may need to incur penalty charges in the form of exit load.8. Charges involved In mutual fund investments, you mainly incur transaction charges (when you go through an intermediary) and fund management charges (based on expense ratio). SEBI makes the guidelines for these expenses and fund houses need to adhere to the same. For direct equity investments, there are demat, brokerage as well as transaction charges. Mutual Funds have high trading volumes. This, in turn, brings down the per-transaction cost as compared to an individual investor with lower trade volumes. Conclusion There is no best investment channel that will hold good for each and every person. Both routes have their own merits & demerits. The final choice depends on you and your needs/ priorities. Direct equity investing can be highly rewarding for individuals with in-depth knowledge of the markets and high-risk appetite. However, usually, retail investors do not possess such thorough market understanding. Some may not be able to dedicate so much time to research or monitor the market trend or movements. In such situations, it is advisable to take the mutual fund route and leave the investment decisions to professionals or fund managers. They can suggest the best mutual funds to invest in as per your goals, needs and risk profile. Financial experts like IndiaNivesh have helped thousands of investors optimise the value of their investments. With more than 11 years of experience in the Indian markets, they are adept at understanding the specific needs of each investor. They offer a wide range of financial services including mutual funds, equities, derivatives, insurance, commodities, PMS, investment banking, corporate advisory, wealth management, etc.  With an expert like IndiaNivesh, you are sure to make the best out of your hard-earned money.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.

read more

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