What is Premarket Stock Trading? The Basics

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If you are relatively new to the world of stock trading and the market, then you’ll probably hear a lot of phrases that you’re not familiar with. One of the most common terms that came across early on is premarket stock trading. This phrase refers to the process that can use to buy and sell securities in the stock market outside of the typical hours when the floors are open. Pre-market and after-hours trading are two alternatives to using the standard stock schedule. While the after-hours market opens at around 4 pm when the usual stock exchange closes, the pre-market opens anywhere between 6 am, and 8 am, depending on who you’re trading with. Different brokers can offer access to the electronic communication network at different times. That is why it’s so important for people interested in pre-market trading to ensure that they track down the right broker.

How Does it Work?

Many traders and investors keep a close eye on the activity in the pre-market arena to determine the direction and strength of the markets that they are interested in. Looking at the pre-market can help you to figure out how effective the standard session is going to be in the day ahead. However, just because a lot of people watch the pre-market environment does not mean that they will always get involved.

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Premarket trading has a lot of benefits to offer in the right circumstances. For instance, if an earnings report or a piece of news has the potential to change the price of a stock, you can get into the market early before a lot of other traders and buy or sell stocks depending on what’s best for your financial portfolio. This can stop you from losing some hard-earned money. However, the pre-market trading floor also suffers from limited liquidity and volume. This means that bid-ask spreads are typically quite large and there are more risks to consider for the average trader than usual.

Getting Involved

Most of the time, there is not a lot of activity in the premarket trading sessions early in the morning, unless relevant news has been released. This can make it a lot harder to buy and sell stocks. However, because premarket trading has the potential to be valuable in the right circumstances, there are a lot of brokers out there that can offer it as part of their service package.

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While many brokers offer pre-market trading, it’s important to note that some of them will limit the kind of orders that you can access during this period. It is worth making sure that you understand what your broker can offer before you get involved with any pre-market or after-hours sessions. Additionally, if you are thinking about using the pre-market trading environment to develop your wealth portfolio, make sure that you have a plan in place to keep your wins high and your losses to a minimum. Your strategy may need to change slightly from the plan you use during the day.