- Premarket Trading Tips For Beginners
- Premarket Trading Hours
- Premarket Stock Trading
- Premarket Trading Tips
- Premarket Trading Example
- Risks Involved
- Bottom Line
- Understanding Pre-Market and After-Hours Stock Trading
- [VIDEO] Understanding Pre-Market and After-Hours Stock Trading
- After-Hours Stock Trading
- Pre-Market Stock Trading
- Risks of Trading After Hours and Pre-Market
- Inability to see or act upon quotes:
- Lack of liquidity:
- Larger quote spreads:
- Price volatility:
- Uncertain prices:
- Bias toward limit orders:
- Competition with professional traders:
- Computer delays:
- Conclusion: Understanding Pre-Market and After-Hours Stock Trading
Premarket Trading Tips For Beginners
Premarket trading occurs during the time period before the stock market opens, which usually happens between 8:00 a.m. and 9:30 a.m EST.
Many stock traders focus on how shares of a company perform after the opening bell and completely disregard the premarket trading session.
The major U.S. stock market exchanges open for normal trading from 9:30 a.m. ET to 4:00 p.m. ET, Monday through Friday unless it is a holiday.
Thousands of stock traders are drawn to the exchanges immediately following the opening bell . The stock market is crowded during regular hours of trading which is why some investors have embraced the premarket session, a less crowded time to trade.
However, there are some drawbacks/risks with trading in the premarket which we will cover below.
Premarket Trading Hours
Premarket trading is the trading session that happens before the normal trading session starts. The session allows both institutional investors and individual traders to trade stocks between 4:00 a.m. ET and 9:30 a.m. ET.
Brokers, however, can determine the exact timeframe during which premarket trading takes place. One broker may decide to offer trading running from 4:00 a.m. ET to 9:30 a.m. ET, while another may offer it from 6:00 a.m. ET to 9:30 a.m. ET.
For example, TD Ameritrade offers premarket trading from 8:00 a.m. ET to 9:15 a.m. ET, while premarket trading at Scottrade begins from 6:00 a.m. ET to 9:28 a.m. ET. Some brokerage firms do not offer trading in the premarket at all.
Premarket trading occurs on electronic market exchanges, and it has been growing in popularity since 1990 as investors continue to embrace the idea of trading stocks over electronic communication networks.
In the past, only hedge funds, banks, insurance companies, mutual funds, and other institutional investors were allowed to place premarket orders.
Premarket Stock Trading
Before trying to place your first premarket order, it is important to watch premarket trading for some time to understand the entire process.
Premarket Trading Tips
Before jumping into trading during the premarket, make sure you know these rules:
- You can only place limit orders
- Orders are only good for that session, they do not carry over to the regular market session
- Premarket sessions are typically much less liquid
- Premarket orders are matched electronically through ECNs
- Brokers can set their own rules for premarket trading, so make sure to check with them!
The platform provided to you by your broker should have tips on how to buy and sell shares during premarket sessions. Premarket orders are not executed as easily as those executed during regular hours.
Brokerage firms only accept limit orders (those directing the firms to sell or buy shares at a given price) in premarket. Your broker will not execute your order if the shares are not trading within the designated limit.
The orders have limitations as well: 25,000 is the maximum number of shares per order. Brokers only honor premarket orders for the precise session in which investors placed them.
There is no guarantee that premarket orders are placed before the opening bell if trading activity is significantly low, but it is certain that they are not carried over into the normal trading hours.
The procedure and cost of trading stocks during premarket hours also depends on the broker.
TD Ameritrade and Scottrade simply charge their regular commissions to trade shares in premarket sessions. Others, such as E*TRADE charge an extra $0.005 a share for pre-market trades. Brokers also often provide particular premarket policies that is usually available on their websites.
Remember that the premarket trend and price range can take a different course after the opening bell. Getting caught up in a position that backfires ferociously after the open is one of the worst situations.
There tend to be many stop orders during premarket session that are ready to trigger prices after market opens.
The orders can result in tidal waves of momentum against existing positions, which is why investors should close their positions before opening bell.
Premarket Trading Example
As you can see in the (NASDAQ: TWTR) chart above, premarket volume is very light. The only thing that can change that is news during off market hours buyouts, mergers and most commonly earnings.
It’s very risky to trade the premarket when volume is this light because you are susceptible to illiquidity which can make it very hard to exit a position without a lot of slippage.
Above is an example of premarket trading after earnings were released. You can see there is significantly more volume (although still quite less than normal market hours) as traders are reacting to the earnings news.
Stocks can be incredibly volatile during this time BUT there is also more liquidity which will make it easier to get in and a trade.
If you are new to trading you should avoid trading during this time. It’s just too risky and there is plenty of opportunity during normal market hours to capitalize on.
Risks inherent in the premarket:
- Illiquidity, very light volume
- Limit orders only, can’t bail with market order
- Potential for extreme volatility
- Wider spreads
Investors with online trading accounts can buy stocks in premarket hours if their brokerage firms provide this option.
But even though premarket trading allows investors to trade shares as early as 4:00 a.m. ET, there are less sellers and buyers during the session.
Most investors are usually sound asleep, so even small orders can distort prices.
Sellers and buyers of most stocks can trade speedily with each other during regular trading sessions, un in premarket hours when investors experience less trading activity thus making it challenging to execute some of their orders.
Less trading volume might also mean bigger spreads between the ask and bid prices. Therefore, investors could find it more grueling to get as favorable share prices as they could have during normal trading sessions.
Limited trading activity also means that investors may find greater price fluctuations than they would have seen during regular hours of trading.
In spite of the risks associated with premarket trading, this type of trading is beginning to attract keen interest from investors.
Premarket trading allows investors to respond fast to major events and news, such as political turmoil overseas or sudden corporate misfortunes that are affecting a stock, even before the market opens.
Placing trades in the premarket trading sessions may not be a great place for new traders looking to try their luck in the stock trading world due to the inherent risks mentioned above.
However, once you are comfortable with those risks, trading with a small position at first is a good way to test the waters.
A lot of traders trading the premarket because of the volatility, so take your time and learn the ropes before diving in!
One last note, remember to always check for upcoming news releases especially any economic data reports that may affect stock prices drastically!
Understanding Pre-Market and After-Hours Stock Trading
The U.S. Stock Market is open for business for six-and-a-half hours—from 9:30 a.m to 4:00 p.m.
ET—nearly every business day, and it draws crowds of thousands upon thousands of investors as soon as the opening bell rings.
Wall Street is crowded during normal trading hours, but some investors are finding a less crowded space to trade in: the pre-market and after-hours stock trading sessions.
[VIDEO] Understanding Pre-Market and After-Hours Stock Trading
That’s right…you can actually trade before the market opens in the morning, and you can keep on trading once the market has closed in the afternoon. Of course, the playing field is a little different during off-market trading hours than it is when the full stock market is open, but we’ll cover that.
After-Hours Stock Trading
As its name suggests, after-hours stock trading occurs after the regular stock market hours—9:30 a.m to 4:00 p.m. ET—are over. After-hours stock trading takes place between the hours of 4:00 to 6:30 p.m. ET.
But why would you want to trade stocks in the after-hours trading session?
According to Chris Concannon, an executive VP in the Transaction Services Group at NASDAQ, “Many companies report earnings either before the market opens or after the market closes. The intrinsic value of a stock is constantly moving whether the market is open or not, and people want to access the market when the intrinsic value is changing.”
Pre-Market Stock Trading
As its name suggests, pre-market stock trading occurs before the stock market opens up for its regular hours of trading at 9:30 a.m ET. Pre-market stock trading takes place between the hours of 8:00 to 9:30 a.m. ET.
Investors to trade in the pre-market session for the same reason they to trade in the after-hours trading session…they want to get a leg up on the competition by reacting quickly to news announcements that occur when the regular market is closed.
Risks of Trading After Hours and Pre-Market
All investing involves risk, but the Securities and Exchange Commission (SEC) outlines the following eight risks that are specifically associated with trading in the after-hours and pre-market sessions:
Inability to see or act upon quotes:
Some firms only allow investors to view quotes from the one trading system the firm uses for after-hours trading. Check with your broker to see which firms quotes you will be able to see and off of which quotes you will be able to trade.
Lack of liquidity:
During regular trading hours, buyers and sellers of most stocks can trade readily with one another. During after-hours, there may be less trading volume for some stocks, making it more difficult to execute some of your trades.
Larger quote spreads:
Less trading activity could also mean wider spreads between the bid and ask prices. As a result, you may find it more difficult to get your order executed or to get as favorable a price as you could have during regular market hours.
For stocks with limited trading activity, you may find greater price fluctuations than you would have seen during regular trading hours.
The prices of some stocks traded during the after-hours session may not reflect the prices of those stocks during regular hours, either at the end of the regular trading session or upon the opening of regular trading the next business day. This means that even if a stock price rises in after-hours trading, it may fall right back down when regular trading opens again and the rest of the market gets to cast its vote on the price of the stock.
Bias toward limit orders:
Many electronic trading systems currently accept only limit orders in the pre-market and after-hours sessions. Limit orders may cause you to miss out on having a trade filled.
Competition with professional traders:
Many of the after-hours traders are professionals with large institutions, such as mutual funds, who may have access to more information than individual investors.
As with online trading, you may encounter during after-hours delays or failures in getting your order executed, including orders to cancel or change your trades.
Conclusion: Understanding Pre-Market and After-Hours Stock Trading
If you are looking for an edge in your stock trading, placing trades in the pre-market and/or after-hours trading sessions may be a great place to start. Just remember that there are additional risks you need to be aware of.
Check with your broker to see if it offers off-hours trading and what you need to do to qualify.