You can trade before markets open and after they close with extended-hours trading, which allows you to trade outside of regular market hours. For individuals with hectic schedules, pre-market and after-hours trading could be a viable option.
The pre-market session offers investors an opportunity to react to news and events that occur outside of regular trading hours. However, it’s important to understand the risks involved before participating in pre-market trading. This guide will walk you through the process of buying pre-market, including the risks and benefits, how to place an order, and the best brokers for pre-market trading.
What is Pre-Market Trading?
Pre-market trading is a period of trading activity that occurs before the stock market opens. It typically takes place between 8 a.m. and 9:30 a.m. ET but some brokers allow access to pre-market trading as early as 4 a.m. ET.
Benefits of Pre-Market Trading
- React to News and Events: Pre-market trading allows investors to react to news and events that occur outside of regular trading hours. For example, if a company releases a positive earnings report after hours, investors can buy shares before the market opens and potentially benefit from the price increase.
- Trade Ahead of the Crowd: Pre-market trading allows investors to place orders ahead of the next day’s trading session. This can be beneficial if you expect a stock to move significantly in one direction or the other.
- Convenience: Pre-market trading is convenient for investors who have busy schedules and cannot trade during regular hours.
Risks of Pre-Market Trading
- Low Liquidity: Pre-market trading is characterized by low liquidity, meaning there may not be enough buyers or sellers to execute your order at the price you want. This can lead to slippage, which is the difference between the price you expect to pay and the price you actually pay.
- Volatility: Pre-market trading is more volatile than regular-hours trading due to the low volume of trading. This means that prices can swing more dramatically in either direction.
- Limited Order Types: Only limit orders are available during pre-market trading. This means that you cannot place a market order, which is an order to buy or sell a stock at the best available price.
How to Place a Pre-Market Order
To place a pre-market order, follow these steps:
- Log in to your brokerage account.
- Navigate to the pre-market trading section.
- Select the stock you want to buy.
- Enter the number of shares you want to buy.
- Enter the limit price.
- Submit your order.
Best Brokers for Pre-Market Trading
- Charles Schwab: Schwab offers pre-market trading from 8:00 a.m. to 9:30 a.m. ET.
- Robinhood: Robinhood offers pre-market trading from 9:00 a.m. to 9:30 a.m. ET.
- Fidelity: Fidelity offers pre-market trading from 7:00 a.m. to 9:30 a.m. ET.
- WeBull: WeBull offers pre-market trading from 4:00 a.m. to 9:30 a.m. ET.
- E*Trade: E*Trade offers pre-market trading from 8:00 a.m. to 9:30 a.m. ET.
- TD Ameritrade: TD Ameritrade offers pre-market trading from 8:00 a.m. to 9:30 a.m. ET.
Pre-market trading can be a valuable tool for investors who want to react to news and events or trade ahead of the crowd. However, it’s important to understand the risks involved before participating in pre-market trading. By following the steps outlined in this guide, you can place a pre-market order and potentially benefit from this trading session.
Frequently Asked Questions
Q: What is the difference between pre-market trading and after-hours trading?
A: Pre-market trading occurs before the stock market opens, while after-hours trading occurs after the stock market closes.
Q: What are the risks of pre-market trading?
A: The risks of pre-market trading include low liquidity, volatility, and limited order types.
Q: What are the benefits of pre-market trading?
A: The benefits of pre-market trading include the ability to react to news and events, trade ahead of the crowd, and convenience.
Q: How do I place a pre-market order?
A: To place a pre-market order, log in to your brokerage account, navigate to the pre-market trading section, select the stock you want to buy, enter the number of shares you want to buy, enter the limit price, and submit your order.
Q: What are the best brokers for pre-market trading?
A: The best brokers for pre-market trading include Charles Schwab, Robinhood, Fidelity, WeBull, E*Trade, and TD Ameritrade.
Additional Resources
Disclaimer: I am an AI chatbot and cannot provide financial advice.
What are the after-market hours?
As the name implies, after-hours trading occurs after the markets close. For U. S. stock markets, after-hours trading starts at 4 p. m. and can run as late as 8 p. m. ET. On the TSX, the post-trading session runs from 4:15 p. m. to 5 p. m. ET.
Risks associated with pre-market and after-hours trading
Liquidity: A security is said to have high liquidity if there are a lot of orders in the market. However, there is no assurance that a particular trade will be executed due to the extremely low levels of liquidity during pre-market and after-market hours. You run the risk of having your order partially or not executed at all.
Volatility: The term used to describe variations in a security’s price during trading hours Extended hours trading can be volatile and lead to price swings because fewer people are participating.
The spread is the quantifiable price differential between the buying and selling price of an asset. Pre- and post-market hours are when the spread may be wider due to lower liquidity and higher volatility.
Availability: Not all stocks are available for trading during pre-market and after-hours trading. Additionally, investors can only place limit orders during these extended hours.
Regardless of changes in the market or other events, some institutional and significant investors may decide to simply abstain from pre- and after-market trading. Because of this, it is possible for the price of an equity to drop significantly during extended hours trading and then rise the next day when the markets open.