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I am trying to determine how to estimate the pre-market opening price of a stock.

Stocks trade in the main session from 9:30 to 16:00, then in after-hours from 16:00 to 20:00.

I've always been taught to believe that at 20:00 all trading stops until 4:00, when pre-market opens. However, it is extremely common that pre-market will open at a price that is marginally different from that of it's after-hours close.

I believe that the difference between the closing AH price and the opening PM price can be attributed to limit orders placed between 20:00-04:00 by ECNs. That would mean that these ECNs are aggregated in an orderbook. In futures, the CME documents extensively that there is a pre-open period during which an indicative open price is determined by a number of pretty logical rules related to matchable order quantities.

This seems pretty straight forward, but is that what actually occurs?

Futhermore, what kind of resources can I use to estimate a pre-market opening price, would an orderbook suffice? Does anyone have any recommendations for a data vendor or a resource (that doesn't cost a kidney) that would lead me to an estimate?

The NYSE specifies a "pre-opening" session between 3:30 and 4:00 where limit orders are placed. Any idea of how to see that order book?

Thanks in advanced for all the help and input!

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  • Limit orders placed by ECNs? I don't know the answer to your specific questions but it would seem to me that there's no way to estimate opening price. If it could be done, everyone would be doing it. Apart from that, even if you could get access, there are hidden orders which prevent one from knowing the actual size being bid or asked at any given price. – Bob Baerker Mar 15 at 20:04
  • I think you're right and it's not that simple to estimate the exact quoted open. However, based on how auction markets behave and deal with limit orders in futures it should be possible to at least determine the vector relative to the last quoted price at AH close. Since posting the question I've managed to get a hold of at least one person that claims the pre-open price discovery is a component to many data vendor's order books. Will post my results if I figure it out. Thanks the input, Bob ! – John M. Mar 15 at 20:15
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As others have said, what you're asking would be the million-dollar question so to speak!

There are so many variables that go into such a calculation, and MANY of them are ones to which you don't have access, or even if you did, would necessarily know how to apply to the stock. Some of them are contextual, meaning they may apply more in one set of circumstances than in another, so it's difficult at best and impossible at worst, almost like trying to predict where a particular raindrop is going to land.

All you can do is watch the buy/sell ratio and volume trends to get a general idea of which direction a stock is likely to go, but even that can be just guesswork. What can ruin all of your hard work? A well-timed press release from the target company or an analyst just before trading begins, or some sort of external news story that gets a lot of investor attention. All the math and models in the world won't save you when that happens - man times news affects stock more on emotion than facts. Ever heard the saying, "Buy on rumor and sell on fact"?

Not to sound like a smart aleck, but if you figure out this particular riddle, don't tell ANYONE unless you're charging mightily for the answer, because it'll make you incredibly rich!

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  • Why would being able to approximately predict the 4:00 opening price make you rich? How do you profit from it? OP is talking about making the prediction between 3:30 and 4:00, when trading is not occurring. – nanoman Mar 16 at 2:40
  • Precisely because of what the OP mentions - placement of pre-market limit orders. – RiverNet Mar 16 at 2:56
  • Suppose I know for sure that the premarket open at 4:00 will be $10.00. How do I profit? Any order I place won't execute until 4:00, and all I know is that if I buy or sell it will be at $10.00. To profit, I need to anticipate a subsequent price move from there. – nanoman Mar 16 at 3:22
  • @nanoman is right, this isn't for alpha, it's purely for information purposes. Insofar as variables are concerned, you'd be surprised how basic the math calculations are in exchange operations, especially in auction markets. So far I've made some progress on how things are done on NYSE Arca, but will keep digging. If I find out something interesting I'll update this post. – John M. Mar 16 at 15:54
  • I don't disagree that the MATH may be there, but there are external factors (such as news events, press releases, etc.) which can conspire to spoil the mathematical models, and that is perhaps my larger point. Perhaps my answer should have been more expressive of this. – RiverNet Mar 16 at 16:21
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I interpret the question as seeking an informational prediction, not a profit opportunity. That is, you want to "predict" the premarket open of an individual stock in the same sense that the overnight S&P 500 futures "predict" the premarket open of the SPY ETF. This will account for information known to the market at the time of the prediction, but will not attempt to predict any subsequent moves (which in an efficient market will have zero mean).

So I think others' mentions of "everyone would be doing it" and "million-dollar question" are off-point. Everyone could do it and many already are. There's no paradox because it's not a way to beat the market.

So here's what I think can be done:

  1. Some US stocks like Microsoft trade on the Frankfurt exchange, which for most of the year opens at 3:00a New York time. Those prices can be converted from euros to dollars to get an indicative New York premarket open.

  2. If a Frankfurt price is not available, an estimate can be made from correlated stocks and indexes. You could do a historical regression of the premarket open of the stock against, say, the available price moves as of 3:30a for similar stocks (US or foreign) that do trade in Europe, and futures on indexes that the stock belongs to. An efficient market does not prevent this from working, since it is not a prediction for making money. You'd be predicting the change from the previous close at a time when you can no longer trade at the previous close.

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  • Pre-market opens at 4 ET or 9 CET (usually 4ET == 10 CET, this will be the case again after Mar. 28). German markets start pre-market 8 CET, so 3 ET, that's a tight window, and the volume in Europe so so small. Would have to look at London and Euronext, both start trading a lot sooner. I still think you're onto something though. The abritrageur in me says to look for volume in the limit order auction resulting from Europe. However, at the same time there are so many examples where the two markets trade differently. At least this is easier to measure, I will look into this more, thanks. – John M. Mar 16 at 16:08

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