Institutional investors used to be the only ones allowed to engage in premarket trading, but an increasing number of online brokers are opening up extended hours to retail investors.
Premarket trading allows investors to buy and sell stocks before the market opens by taking place before regular trading hours on a stock exchange. Typical premarket trading hours in the U. S. are from 8 a. m. to 9:30 a. m. ET, however certain exchanges will carry out trades as early as 4 a.m. m. Orders for premarket trades can also be placed by investors prior to those trading hours.
This article explains the benefits and drawbacks of premarket trading as well as why you might want to buy or sell stocks during the premarket trading session.
Companies often release important news outside of normal trading hours. Certain companies, for instance, release their quarterly earnings early in the morning, well ahead of the opening of the market. Some businesses will also hold off on releasing press releases until first thing in the morning to announce significant alliances, new offerings, or executive changes.
Such information may significantly affect a stock’s market value. This explains why, when a company releases earnings, its share price frequently opens at a significantly different price than it did at the previous close. You must place an order for the premarket trading session if you wish to trade on an early morning news release as soon as possible.
What is pre-market trading?
Pre-market trading is the practice of buying and selling stocks before the official market opening hours. It typically takes place from 8:00 am to 9:30 am Eastern Standard Time (EST) in the United States allowing investors to react to news and events that occur outside of regular trading hours.
How does pre-market trading work?
Unlike regular trading, which occurs on major exchanges like the New York Stock Exchange (NYSE) and Nasdaq, pre-market trading takes place on electronic communication networks (ECNs). ECNs are essentially online platforms that connect buyers and sellers of securities.
To participate in pre-market trading, investors need to have a brokerage account that offers this service. Most major online brokers, such as Fidelity, Charles Schwab, and TD Ameritrade, provide access to pre-market trading.
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. This can be especially beneficial for investors who want to take advantage of positive or negative news before the market opens.
- Trade ahead of the crowd: Pre-market trading can give investors an edge by allowing them to trade ahead of the crowd. This can be especially helpful for investors who are looking to buy or sell large blocks of stock without affecting the price.
- Trade when it’s convenient: Pre-market trading can be convenient for investors who have busy schedules and are unable to trade during regular hours.
Risks of pre-market trading:
- Limited liquidity: Pre-market trading typically has lower liquidity than regular trading. This means that there may be fewer buyers and sellers available, which can make it difficult to get a good price for your trades.
- Increased volatility: Pre-market trading can be more volatile than regular trading. This is because there are fewer participants in the market, which can make prices more susceptible to sudden changes.
- Limited order types: Pre-market trading typically only allows for limit orders, which means that you can only buy or sell a stock at a specific price or better. Market orders, which allow you to buy or sell a stock at the best available price, are not typically available in pre-market trading.
Who should consider pre-market trading?
Pre-market trading can be a valuable tool for investors who are looking to react to news and events, trade ahead of the crowd, or trade when it’s convenient. However, it’s important to be aware of the risks involved before participating in pre-market trading.
Frequently Asked Questions about Pre-Market Trading:
1. What are the hours for pre-market trading?
The typical pre-market trading hours in the United States are from 8:00 am to 9:30 am Eastern Standard Time (EST). However, some brokers may offer extended pre-market hours.
2. What types of orders can I place in pre-market trading?
Pre-market trading typically only allows for limit orders. This means that you can only buy or sell a stock at a specific price or better. Market orders, which allow you to buy or sell a stock at the best available price, are not typically available in pre-market trading.
3. Is pre-market trading risky?
Pre-market trading can be more risky than regular trading due to lower liquidity and increased volatility. However, it can also be a valuable tool for investors who are looking to react to news and events or trade ahead of the crowd.
4. How can I get started with pre-market trading?
To get started with pre-market trading, you need to have a brokerage account that offers this service. Most major online brokers offer pre-market trading. Once you have a brokerage account, you can place pre-market orders through your broker’s online platform or mobile app.
5. What are some tips for pre-market trading?
Here are some tips for pre-market trading:
- Do your research. Before you place any pre-market orders, make sure you do your research and understand the risks involved.
- Use limit orders. Limit orders can help you get a better price for your trades and reduce your risk of losing money.
- Be patient. Pre-market trading can be volatile, so be patient and don’t expect to make a quick profit.
- Start small. If you’re new to pre-market trading, start with small trades until you get comfortable with the process.
Pre-market trading can be a valuable tool for investors who are looking to react to news and events, trade ahead of the crowd, or trade when it’s convenient. However, it’s important to be aware of the risks involved before participating in pre-market trading.
How to trade premarket and after hours
Purchasing or disposing of stocks during regular business hours differs slightly from trading in the premarket or after-hours session. Orders are routed through an exchange such as the Nasdaq or New York Stock Exchange during the trading day, but during extended hours, trades are conducted through an electronic communications network, or ECN.
Your broker uses an exchange-trade matching (ECN) service to match buy and sell orders and execute trades. It has certain restrictions even though it works well; traders can only use limit orders on an ECN.
If you trade stocks, you may be accustomed to placing market orders that fill at the going rate throughout the day. You set the price when using a limit order, and there’s no assurance the trade will go through. However, if it does execute, it will execute at your price or more.
Logging into your brokerage account is the first step towards placing a trade during the premarket session. You can be able to place extended-hours trades on a different section of your broker’s website or app than regular orders.
When you can place an order for premarket trading will also be specified by the broker. This typically occurs at any point between the end of the premarket and after-hours trading sessions. Keep in mind that the majority of extended-hours trades expire at the conclusion of the current trading session. They do not carry over into normal trading hours.
You will need to submit a limit order once you have determined where to place your order. You indicate the quantity of shares you wish to purchase or sell as well as the price you are willing to accept. Following your order placement, the broker will forward it to the ECN, which will use limit prices to attempt to match your order with others on the network.
Therefore, the network will attempt to match your buy order with an order to sell at least 100 shares at $50 or less if you submit a buy order for 100 shares at $50. If a match is found, the trade is executed and settled in two trading days, exactly like regular trading hours.
Who is allowed to buy premarket?angle-downangle-up
The list of individuals eligible to purchase premarket You can place an order for the premarket session if you have a brokerage account and access to the internet.