Premarket Trading: Tips on how to Trade the Premarket

There’s a buzz when the stock market opens – from 9:30 a.m. ET to 4:00 p.m., ET – for the routine trading hours on business days. And because there is an insane number of traders and investors waiting to get right into the action when the market opens, in the twinkle of an eye, millions of shares of stock would have been traded. 

However, trading stocks aren’t only done during the official market hours. There is a period just before/after the normal trading hours that gives investors the chance to trade stocks.

This is the pre-market trading hours. 

Unlike the regular market hours, pre-market trading sessions have a lesser crowd of investors. 

At official market hours, investors can trade stocks easily as there are always buyers and sellers available. However, with a reduced crowd and liquidity in the pre-market hours, it could be a lot harder – and riskier – to make certain trades. 

As you read on, we’ll cover what pre-market trading is, the risks involved and also why it is a great time for investors looking to monitor proceedings and market activity before official trading hours.

What is Pre-market Trading?

Pre-market trading sessions are activities that occur in the stock market before the official opening in the morning and when it closes in the evening. 

Pre-market trading sessions come with a variety of options depending on the broker. The time also varies with each broker while some do not even offer it at all. 

Formerly, the door to pre-market trading was completely shut to people who aren’t institutional investors with large net-worths, insurance companies, banks, etc.

However, anyone can trade pre-market sessions in the present day with many brokers offering premarket trading.

Pre-market Trading Hours

We’ve already established that pre-market trading hours are determined by your broker and they can vary. 

More often than not, pre-market trading hours will resume just after the official market closes and ends when the market is about to open again.

Your broker will outline its pre-market trading offers and the trading hours so it is important to look out for it before you begin trading.

There are so many examples of varying pre-market sessions from brokers. The NASDAQ stock market resumes after-hours trading at 4:15 p.m – exactly 15 minutes after regular trading has closed – and it will run until 9:30 a.m when regular trading will resume once again.

TD Ameritrade starts pre-market trading sessions at 8:00 a.m and ends it at 9:15 a.m. Scottrade is another stock-brokerage firm owned by TD Ameritrade and they run their after-hours trading sessions from 6:00 p.m to 9:28 a.m.

Everything you need to know about Pre-market Trading

The reason why pre-market trading sessions are becoming more popular than ever is not even because of the extended time to buy and sell stocks, it’s the opportunity it gives investors to follow up proceedings of the market.

Think of it like a football match: before the official game, there’s a pre-match warm-up from the players to get a feel of the pitch. 

It’s the same with pre-market and official market trading sessions.

Using pre-market trading sessions, investors can react to certain events that might lead to an advantage for them when the regular market trading begins. 

So instead of trading, a lot of investors use the after-hours trading sessions to monitor the news and see how it will affect individual securities.

Are there risks involved?

There is very little activity that goes on before the regular stock market opens so it usually comes with a huge risk for investors who are trying to trade stocks at that time.

 Of course, experienced and intelligent investors can use this period to their advantage and make lots of money.

Below are some of the risks involved in Pre-market trading.

Volatile Prices

One thing you need to know about pre-market trading sessions is that – in the past – it was exclusively for the big boys of the industry and the truth is that it is still dominated by these large net-worth investors and institutions.  

Finding a buyer or seller that trade stock at low volume becomes very hard. The limited stock will result in high prices most of the time – but it could also fall. 

If you’re new in the game and you are not conditioned for this type of large stock transaction, it could result in a substantial loss on your part.

Competition with seasoned Investors

A lot of the pre-market traders are mutual funds, banks and institutional investors who have wider access to information and also unlimited resources to trade. 

This leaves a young investor at a huge disadvantage.

Low Liquidity

Due to a lack of activity, the demand and supply of most stocks are lower and this makes it harder to trade.

The Bottomline

I personally don’t trade premarket simply for the lack of liquidity. Stocks usually move the cleanest when there is a lot of volume, and that is exactly what I wait for.

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