However, pre-market trading can also be subject to the whims and fears of less-sophisticated investors. Pre-market trading allows investors to act quickly to major events that can serve a catalyst for market changes, such as sudden corporate misfortune, political turmoil overseas, late-breaking news, etc. Rather than a physical location such as the New York Stock Exchange, the Nasdaq is a network of securities traders who engage and trade directly with one another. The Nasdaq market is an example of an ECN.
However, the volume of extended trading has grown in recent years as retail investors become more comfortable with the idea of trading over an electronic communication network( ECN), which is how extended trading takes place.ĮCNs connect buyers and sellers over a digital network, eliminating the need for an intermediary such as a broker or investment bank. Until recently, pre-market trading volume has been relatively low - typically the domain of big institutional investors who had the confidence to engage in unorthodox trading methods. After-hours trading is usually abbreviated with the acronym AH. Eastern Standard Time (EST), and after-market trading typically occurs between 4:00 p.m. In the U.S., pre-market trading occurs between 8:00 a.m. Computer problems can prevent trade orders from reaching the ECN - including orders to alter or cancel previously executed transactions, as well.Pre-market trading is the trading that occurs on electronic market exchanges before regular stock market trading hours begin. Pre-Market Trading Risksĭuring the pre-market session, as well as in the after-market period, investors can experience trading delays or failures when problems occur between their brokerage and the electronic communications network, or ECN that actually executes the trade. Price shifts may be less dramatic one the regular trading day begins, although investors will usually still be influenced by seeing what prices different stocks were selling for in the early morning hours. This increased volatility can be seen when key economic data are released by the federal government or a company releases its earnings statements before the market opens. Of course, prices can also shift dramatically during the regular closing day, with a day's closing price being sometimes dramatically different from the opening price.Īdditionally, with fewer buyers and sellers active in the hours before the market opens, stock prices can swing more - in either direction - based on less trading activity. Pre-market stock prices do not always accurately reflect prices later seen during regular market hours, so the potential for discrepancies exists. Investors may struggle relatively more to get trades executed or to get the price they want for an equity. Reduced trading activity in the pre-market period also translates to bigger spreads between stocks' bid and ask prices. Monitor leaders, laggards and most active stocks during premarket trading. Still, prices naturally shift as traders bid prices higher and lower, especially if there was news about a particular company after trading hours that can lead investors to want to buy or sell quickly. Monitor leaders, laggards and most active stocks during premarket trading. Buyers and sellers have less liquidity, or ability to convert stocks into cash, so prices may not adjust as quickly as they do in the regular session. With fewer participants active before 9:30 a.m., investors can find it more difficult to execute transactions.
Trading volumes in the pre-market session are typically much lower compared with regular trading hours, when plenty of buyers and sellers are present to facilitate stock trades. That said, most of the investors active in pre-market trading are professionals from large firms including major mutual funds.Īfter hours market trading works in a similar way, giving investors the opportunity to buy and sell stock after the 4:00 p.m. Historically, individual investors' access to this trading window was limited, but many retail brokerages now offer the option to retail customers. Pre-market trades are executed on computer-based systems including alternative trading systems and electronic communications networks, which are operated by brokerage firms. The opening hour for pre-market trades varies with each stock exchange, with some opening as early as 4:00 a.m. stock markets occurs on weekday mornings before 9:30 a.m. Understanding Premarket Trading Background Premarket and after hours stock quotes can motivate people to buy or sell to grab what appears to be a bargain stock, dump a stock that looks to be headed down in price or take advantage of a rising price to sell. People buying and selling stock naturally take into account price information before and after-hours trading sessions as well as from during the traditional trading day.