What is pre-market trading and how does it work? (2024)

What is pre-market trading?

Pre-market trading is the process of trading assets before the markets open. Simply put, it's trading before the normal market hours begin. Traders use pre-market movements to gauge how markets might operate on full opening. However, they operate under more constraints and with much lower liquidity than during regular trading hours.

Trading pre-market is most common on the back of new information about an asset. This includes monetary policy, economic data and company earnings announcements. For example, companies may release financial results late at night, with the first time for traders to respond being the pre-market.

Which assets can I trade in the pre-market?

You can take positions on listed stocks and indices through pre-market trading. Stocks are a popular pre-market asset to trade on because they typically have a high enough volume of trades to see a notable change in their share price. Small-cap stocks and those with a limited float generally lack the liquidity to generate a high-enough volume of trades.

Indices trading allows you to take a position on a group of major shares. We offer 24/7 trading on indices.

Other assets, like foreign exchange and commodities, don't have pre-market trading hours because they operate 24 hours a day on weekdays.

Weekend trading is also available with us for key indices and forex pairs that usually only trade between Monday and Friday.

Benefits of pre-market trading

Pre-market trading can be beneficial as a means of convenience and faster reaction, as the following points outline.

Reaction to overnight news

Sometimes, pre-market trading is the first time to react to news that might affect a stock's price. The overnight release of economic data like inflation, companies' financial results or geopolitical developments can all cause a share price to move pre-market. However, due to smaller trading volume,s pre-market price moves may not be a precursor to similar moves when the markets open.

Chance to compete with other traders

Traders with expertise in technical and fundamental analysis can use pre-market hours to get a jump on the competition, with other traders entering at normal hours. For example, if a trader thinks that a company's earnings miss will affect its share price, they might take a position in early trading,. If the market moves in the trader's favour, they'll make a profit - if it doesn't, they'll incur a loss.

Convenience

Traders also like trading during pre-market hours because it might be more convenient. Part-time and novice traders don't have the time or resources to commit to day trading during normal working hours because of other commitments. Pre-market trading can be the best option for these traders to potentially make an extra income. This also applies to people trading in other countries where pre-market hours might suit them better.

Risks of pre-market trading

There are several risks to pre-market trading, largely based on its differences to trading during regular hours. The Securities and Exchange Commission (SEC) lists risks to be aware of in pre-market trading.

These include:

Limited liquidity

Trading depends on having a ready number of other traders prepared to buy and sell your proposed offers. During pre-market hours, because there are fewer traders, it can be more difficult to execute some of these trades. Some stocks might not trade at all. These factors can make it more difficult for you to execute a trade.

Large bid-ask spreads

Because there is less trading volume and fewer traders, you may find it hard to align your bid price with an ask price during pre-market hours. That means you may struggle to get as favourable terms as you would during normal hours, making it more difficult for you to execute a trade.

Non-execution of limit orders

Many online trading systems only accept limit orders during pre-market trading to protect traders from volatility. Limit orders are only executed at a specified price and ensure you don't buy for more or sell for less on your order. Because of volatility, an asset's price might move away from your limit price. This makes pre-market limit orders susceptible to not being executed.

Uncertain prices and high volatility

Because of the limited number of trades and low volume, pre-market moves are by no means an indicator of a share price's movement during normal trading hours. An asset's price could reverse or stall when the markets open, which could leave a pre-market trader out of pocket. Volatility of a share price could also increase, particularly based on overnight news.

Competition with professional traders

While you may get ahead of some of the competition through pre-market trading, you can still be faced with new competition that may be difficult to overcome. Pre-market trading also attracts bigger institutional investors, who may have access to more information than retail traders.

Computer delays

Because most pre-market trading is done online, it's prone to systematic computer delays that might affect the execution, cancellation or changing of your trades.

How to trade on the pre-market

Create an account or log in
Learn more about pre-market trading
Open your CFD account and search for your opportunity
Select 'buy' to go long or 'sell' to go short
Set your position size and take steps to manage your risk
Open and monitor your position

With us, you’ll trade using contracts for difference (CFDs), taking a position on price movements – whether you think it’ll go up or down – rather than owning the shares outright. CFD trading is leveraged, so you could gain or lose money quickly – including the potential to lose more than the initial deposit paid to open the position as potential profits and losses are magnified to the full value of the trade. It's useful to keep in mind that past performance isn't a guarantee of future patterns.

With CFDs, your currency exposure and initial margin will vary according to the asset you choose to trade. To manage risk when trading CFDs, many traders set stop-loss orders to try prevent outsized losses.

New to investing or trading? Practise on a demo account to build your confidence.

Pre-market trading summed up

Pre-market trading is the process of trading assets before the start of regular market hours
You can typically trade on shares pre-market, but weekend trading is also available with us for indices and currency pairs
Pre-market trading allows traders to react early on to overnight news that might affect share prices, potentially helping them get ahead of the competition
Risks of pre-market trading include limited liquidity, large bid-ask spreads and non-execution of limit orders

FAQs

What is pre-market trading and how does it work? ›

The pre-market is a period of trading activity that occurs before the stock market opens. Though its trading session typically occurs from 8 a.m. to 9:30 a.m. ET each trading day, several direct-access brokers allow access to pre-market trading to commence as early as 4 a.m.

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Is it good to trade during pre market? ›

Pre-market trading can be a good way to get into the market or out of it, particularly for widely followed stocks and funds. With pre-market trading, you can place trades before much of the market is ready to act. Despite this advantage, pre-market trading is not without some drawbacks.

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How do you trade pre-market? ›

The first step to place a trade for the premarket session is to log into your brokerage account. Your broker may have a specific area of their website or app to place extended-hours trades, separate from standard orders. The broker will also detail when you can place an order for premarket trading.

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What does premarket tell you? ›

The Nasdaq-100 Pre-Market Indicator (PMI) gives an indication of the opening price for the Nasdaq 100 each trading day. After-hours trading refers to the buying and selling of stocks after the close of the U.S. stock exchanges at 4 p.m. through 8 p.m. U.S. Eastern Time.

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Does premarket affect opening prices? ›

This premarket window can affect the opening price of stock based on the demand and supply of that particular stock. In a nutshell, this causes the opening price to be different from the previous day's closing price. After market orders (AMOs) can also contribute to the difference between the closing and opening price.

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Can you trust the pre-market? ›

However, with very low levels of liquidity during pre-market and after-market hours, there is no guarantee that a certain trade will be executed. the risk is that your order may be partially executed or not executed at all. Volatility: Changes in price of a security during trading hours is known as volatility.

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Does buying pre-market count as a day trade? ›

First, what is a day trade? A day trade occurs when an equity or equity options position is opened and closed on the same trading day (including pre and post-market). Day trading includes buying and then selling as well as selling short and then buying to cover.

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How long does pre-market trading last? ›

Pre-market trading typically occurs from 8 a.m. to 9:30 a.m., though it can begin as early as 4 a.m. ET. After-hours trading starts at 4 p.m. and can run as late as 8 p.m. ET.

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Does premarket trading predict? ›

Extended-hours trading in stocks takes place on electronic markets known as ECNs before the financial markets open for the day, as well as after they close. This activity can help investors predict the open market direction.

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Can I buy stock before the market opens? ›

It is important to note that both the purchase and sale of shares may take place in the pre-open market. The key advantage of this is that certain variables which normally affect the financial markets while trading is on, such as financial news of any kind, do not affect the prices in the pre-open session.

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How accurate is pre-market? ›

Uncertain prices and high volatility

Because of the limited number of trades and low volume, pre-market moves are by no means an indicator of a share price's movement during normal trading hours. An asset's price could reverse or stall when the markets open, which could leave a pre-market trader out of pocket.

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Why do stocks always go up pre-market? ›

Demand is generated by nimble retail traders rushing to buy the stock when markets first open. Stock prices spike because there aren't enough large brokerages ready and willing to sell the in-demand stock based on limited information early in the day.

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How do people trade after hours? ›

During after-hours trading, however, trading is carried out through Electronic Communications Networks (ECNs). These electronic networks enable investors to buy and sell stocks without the standard daytime market participants.

What is the best time of day to buy stocks? ›

The opening period (9:30 a.m. to 10:30 a.m. Eastern Time) is often one of the best hours of the day for day trading, offering the biggest moves in the shortest amount of time. A lot of professional day traders stop trading around 11:30 a.m. because that is when volatility and volume tend to taper off.