Pre-open Session . How is the equilibrium price determined ?

Pre-open Session . How is the equilibrium price determined ?

If you are a trader you must have seen that there is a pre-open session from 9 am to 9:15 am for both the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). It is basically the period of trading activity that takes place just before the regular stock market session. Traders keep a close eye on this Pre-market session to guess the strength and mood of the market while looking forward to market opening. Let us try to understand how things work during these 15 minutes. At the outset let me tell you that you can place two types of orders in the stock market – market order and limit order (refer to the following graph). The 15 minutes of pre-open session consists of 3 time slots Now that we know the activities carried during these 3 time slots belonging to the pre-market session, let us take a look at how the equilibrium price determination or the call-auction session functions. Case I Say for example, previous day closing price of Stock A is Rs. 200. The following table gives the price and quantity figures during the pre-open session Share Price Order Book Demand & Supply Quantity Maximum Tradable Quantity Unmatched Orders BUY SELL Demand Supply 202 1000 985 3400 985 985 2415 204 1275 1161 13600 22000 22000 -8400 205 5000 4300 10000 10500 1000 -500 207 4000 7500 4000 6250 4000 -2250 199 2000 10000 27000 37000 27000 -10000 Share price Rs.199 corresponds to the highest tradable quantity of 27000 and hence will be considered as the equilibrium or call auction price. Case II Let’s have a look at another possible...
How Execution Range Effects your Option Trading ?

How Execution Range Effects your Option Trading ?

  Traders, Today we will discuss Execution Range and its effect on your option trading. Currently, option trading has been contributing up to 80% of total exchange volume in NSE. But the liquidity is limited to present month contracts. With low trading activity in most contracts, there is a higher probability of higher impact cost. Impact cost is the difference between ordered price and executed price. To save traders from higher impact cost, the exchange has prescribed execution range for option contracts. Now let us see how it protects the interest of traders. But first the definition,Execution range is the price range on both sides of the current price of a contract. It refers to a range in which you can place orders for the various option contracts. Order placed beyond this range will be rejected. Price for each contract shall be calculated as follows, At market open – Option price derived from the underlying price. During market hours – 1 minute simple average of trade prices. According to NSE the execution range on both sides of price would be:            Now let’s explain it with a simple example, Consider the price of a deep ITM (in the money) Nifty option is 100. Now check the below Order Window. We know from the previous table, execution range for this option would be from 80 to 120. (20% of both sides) Anything beyond this range will not be accepted by the exchange. Now if we put a buy market order of 20 lots @ 100, then only 12 lots will get executed at 105 and 112...
What is NIFTY? How is it calculated? 

What is NIFTY? How is it calculated? 

Nifty, derived from the combination of two words “National” and “Fifty”, is a major stock index introduced by the National Stock Exchange of India. It comprises 50 stocks that are actively traded on the National Stock Exchange or the NSE. These stocks belong to various sectors. Nifty is calculated by using the “Free-float Market Capitalization” methodology. You can get their current values from the Index Bar of your NEST Trading Platform Understanding Free-Float Market Capitalization Free float shares are those shares of a company that are traded in the open market. Not all shares issued by the company are free float. Those that are held by the government or the management or promoters of the company or by foreign direct investors are not actively traded in the market. Only those that are traded in the market are taken into consideration while calculating Nifty. The classes of shareholding that are generally omitted from the characterization as Free-float are the following: Shares that are held by founders, directors, acquirers, etc. which contains an element of control over the business entity Shares that are held by individuals or groups or organisations having “Controlling Interest” Shares that are held by the Government playing the role of promoter or acquirer Equity held by the foreign investors through the FDI Route Strategic shareholding by private corporate bodies and/ or individuals Cross-holding or equity or shares that are held by associates and group companies Shares held by Employee Welfare Trusts Locked-in shares and shares which would not normally be sold in the open market Nifty Calculation The Nifty is a market capitalization weighted index based on...