Trading in Pre And Post Market Session
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.
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.
What is pre-market trading?
Pre-market trading enables you to trade a market before the main session opens. For example, while most traders can only access US stock markets from 3.30pm to 10pm (Swiss time), pre-market trading could enable you to access these markets hours before they open. We offer exclusive extended and pre-market hours on All Sessions stocks, indices, forex pairs and options.
What is post-market trading?
Post-market trading enables you to trade after the main session closes. For example, while most traders can only access US stock markets from 3.30pm to 10pm (Swiss time), post-market trading could grant you access to these markets for hours after they close. Our exclusive extended hours on All Sessions stocks, indices, forex pairs and options enable you to trade post market.
How Does Pre-Market Trading Work?
Pre-market trading permits investors to trade market securities on electronic markets before the commencement of the typical trading day. In the same vein, New York Stock Exchange (NYSE) Arca is a prominent ECN operating from 4 a.m.to 9:30 a.m. ET as pre-market trading hours.
This trading approach is certainly advantageous for both private and institutional investors. They examine pertinent aspects like political unrest, international events, court decisions, regime change, and professional market analysis. Moreover, it assists them in forecasting the anticipated direction of securities in the normal trading session.
Investors must not impulsively follow the pre-market trading live trends and examples and consider all possibilities before proceeding further. Due to the high risk involved, investors prefer to analyze this session rather than active participation. Hence, the approach is befitting for expert and knowledgeable traders but even the individual investors can utilize the same. For example, they may consult with experienced financial advisors to cash in on the pre-market trading strategy.
pre-market and core trading is liable to distinct regulations. Additionally, different brokerage firms and ECNs have varying protocols for pre-market stock trading. Therefore, investors must always compare them before indulging in the process.
Benefits Of Pre market trading
Pre-market trading and after-hours trading collectively known as extendedhours trading share similar benefits and risks. Let's look at the benefits first....
1. Provides an opportunity to react early to overnight news: Pre-market trading provides the retail investor with an opportunity to react to overnight news before the regular trading session commences. Such news could be corporate earnings (although most companies report earnings after markets close, rather than before the open) or a major company announcement, overnight breaking news such as a geopolitical development, or news emanating from overseas markets. The caveat here is that the pre-market reaction to such news may reverse in the regular trading session. The limited trading volume in the pre-market may provide a signal of weakness or strength that may not be borne out when the market opens and regular trading volumes are reached. For example, a stock that reports an earnings miss may be down significantly in pre-market trading but could reverse course and end the day higher in the regular session.
2. Convenience: This is a major benefit for the do-it-yourself investor because not everyone has a schedule that permits trading during regular market hours. The ability to start the day early and place trades in the pre-market is a big advantage for most people due to the frenzied pace of everyday life.
3. Get a jump on the competition: Astute traders and investors who are familiar with trading patterns and experienced in extended-hours trading may use the pre-market to buy or sell stocks at more favorable prices, compared to prices obtained by other traders in the regular session. This is only possible if the pre-market reaction to news about a stock is accurate, and the stock does not fully discount the news in pre-market trading. In such instances, a stock that trades higher in the pre-market will continue to trend significantly higher in the regular trading session, while a stock that trades lower in the pre-market will trend lower during regular trading.
Benefits of Post Market trading
1. Convenience: Extended-hours trading provides added convenience that may not be present during the day trading session. Not everyone is a full-time trader; thus, one of the biggest benefits of after-hours trading is that it allows one to make trades outside of standard trading hours.
Significant news events, such as company earnings releases, may be reported outside regular trading hours. Traders can use the said information to trade immediately and make profits rather than waiting until the next day to take a position.
2. Pricing opportunities: Though extended trading is often characterized by highly volatile stock prices, traders can benefit from appealing stock prices during off-peak hours. For example, when a stock is affected by a news event, a trader can benefit from placing a trade before the next day’s trading session.
3. Ability to react to fresh information: Off-peak sessions give investors an opportunity to trade new information released after the close of the normal trading day. Traders can react quickly to new information and place trades to manage their positions before the next trading session.
Risks of Trading Pre And Post Market Session
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
1. 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.
2. 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.
3. 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.
4. Price volatility: For stocks with limited trading activity, you may find greater price fluctuations than you would have seen during regular trading hours.
5. Uncertain prices: 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.
6. 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.
7. 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.
8. Computer delays: 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.
What Is the Nasdaq-100 Pre-Market Indicator?
The Nasdaq-100 Pre-Market Indicator is calculated based on the last sale of Nasdaq-100 securities during the pre-market trading period of 8:15 a.m. to 9:30 a.m. EST. For Nasdaq-100 securities that do not trade in the pre-market, the calculation uses the last sale from the previous day's 4 p.m. closing price. The Nasdaq-100 Pre-Market Indicator and After Hours Indicator are useful gauges of market sentiment during extended trading hours.
Is 24-Hour Trading for Stocks Going to Be a Reality Soon?
The 24-hour trading that is a feature of the foreign exchange and cryptocurrency markets may come to equity markets within the next few years. 24 Exchange, a Bermuda-based crypto and foreign exchange trading platform, aims to bring the round-the-clock trading of the digital currency realm to the stock market. In October 2021, 24 Exchange filed forms with the Securities and Exchange Commission in hopes of receiving a license to commence operating a 24-hour exchange in 2022.