Pre-open session in single-stock and index futures will start on the NSE from December 8, 2025. Previously in this column, we initiated a discussion as to whether after-market trading in index futures would serve market participants better. This week, we discuss how market participants can benefit from the recent SEBI decision to introduce pre-open sessions in futures.
Spot-futures relationship
Futures contracts must be aligned to their underlying spot prices. Otherwise, market participants can engage in arbitrage opportunities. To do this, traders must first ascertain if futures contract is overpriced. If yes, the arbitrage trade involves going short on futures and simultaneously going long on the stock in multiples of the permitted lot size of the futures contract. This trade requires significant trading capital. The advantage is that it does not involve directional risk. That is, the position will lock-in to gains equal to the price differential between the futures and the spot at the time the trade is initiated.
Note that stocks on which futures and option contracts are available do not have a price band. Yet, this discussion leads to a simple observation. If information either at the market level or at a company-specific level flows after market hours, the impact on the spot and its futures price should not be different. Otherwise, arbitrage opportunities exist. So, how then can the pre-open session in futures price help traders?
The pre-open session will help the market determine the opening price through a call auction mechanism. Suffice it to understand that this process gives a reference price level, especially when material information flows during after-market hours relating to the contract that you want to trade. This will primarily help traders who place orders at the opening. What if you have a day job that is away from the markets? You are more likely to place after market orders (AMO). In such cases, the pre-open session may not really help because your AMO is likely to be based on the previous day’s closing price based on your reading of the price charts.
Optional Reading
The pre-open session will be allowed in the near-month contracts, with trading in the next-month contract starting five trading days before the expiry of the near-month contracts. The overlap in pre-open sessions between the near-month and next-month contract may have several implications. One, rollover costs can be lower. This refers to the cost of shifting the position from the near-month to the next-month contract. With the next-month contract brought to the limelight through the pre-open session, it is likely that the price alignment between the two contracts will be tighter. And two, this could motivate traders setting up futures time spread to close their position during market hours coinciding with the pre-open overlap period, when price differential could be tighter; a time spread involves long position in the next-month contract and short position in the near-month contract to fade carry cost.
(The author offers training programmes for individuals to manage their personal investments)
Published on November 22, 2025
