Pre-market trading is a technique that involves undertaking certain interactions and executing trades before the official opening of the stock market at 9:30am ET. Pre-market sessions run from 4am, although it’s not always possible to complete transactions for the entire duration of these hours. More often than not, the actions that are available are dependent upon on your broker. In this article, we’ll look at the reasons why some investors opt for pre-market action as well as the potential downsides of this approach that influence others to give it a more widespread approach.
The Risks
Before you dive into this type of trading, you need to consider its pitfalls. One of the main drawbacks is that the out of hours market is exceptionally volatile due to fewer checks and balances. As a result, significant losses are generally more likely between 4am and 9:30am ET than at almost any other point in the day. However, the flipside is that there is also more potential for you to profit in a big way. Some people swear by out of hours action as the secret to their success. A further risk is that, because the premarket stock trading period is usually presided over by bigger players, there may not be many opportunities for the smaller scale investors to get a look in. But it’s still accessible in many ways and, if you play your cards right, you may come away with something great.
Mainly as a result of the issues listed above, there is also a smaller volume of activity during the hours before 9:30am, which means that there will usually be fewer opportunities that will suit your requirements. Premarket stock trading is more complex than regular trading too. While some brokers never change their commissions or approaches, others take a different stance during these hours. This means there are different limits and fees involved, making it difficult for those who aren’t as experienced and prepared to keep up.
The Benefits
As you can probably guess, some the plus side of pre-market trading mirror the downsides quite closely, with little margin of error. The volatility of out of hours action means that while there’s every chance you’ll take on a huge loss, there’s an equal likelihood of massive profits. You just need to make the right choices. The complexity of making moves during this time can also be used to your advantage. If you can keep track of all of the additional limits and fee changes, you may be able to find yourself a niche that others haven’t been able to exploit.
A further benefit is that you don’t have to actively make transactions during these hours. You can simply sit back and keep an eye on proceedings. Some of the trends and indications you notice may carry on throughout the day and have a significant impact on the value of certain stock. If you’ve been there since before the market officially opened, you may just have the upper hand over other traders when it comes to sniffing out great opportunities.