Coming to Terms with Premarket Trading
Premarket trading is a form of extended hours selling and buying opportunity for people who want to invest in stocks and shares. The brother of after-hours trading, this solution allows today’s investors to spend money and gain wealth during sessions that occur before the bell rings for the opening of the NYSE and other markets each morning. Often, the majority of premarket sessions will only take place for a brief time – usually between 8 am and 9:30 am, when the markets open in earnest. However, depending on the broker that you work with, you may be able to buy and sell stocks throughout much of the early morning. Some companies offer sessions that begin as early as 4 am or 5 am.
Who Uses Premarket Trading Sessions?
Premarket
trading isn’t the right strategy for everyone on the stock market. It’s
rarely something that’s recommended for beginners. That’s because when you deal
with stocks outside of the regular brokerage hours, there aren’t going to be a
lot of people to trade with. This limits the liquidity of your trades and may
mean that you end up getting stuck in a position that you’re not particularly
happy with.
However, when people do opt for extended-hours investing,
it’s usually because they know something about the market or the stocks that
they’re involved with. Many companies release news statements either before the
market opens each morning, or after it closes at night. If you learn something
about a position that you’re in that could affect your finances, then you may
be keen to enter the market as early as possible. There are also a lot of
traders and investors out there who don’t get involved with the premarket, but
watch how it evolves during the early hours of the morning, so that they can
make more informed decisions about what to do with their money when the bell
rings at 9:30 am EST.
Early-Morning Trading: Is It Worth Getting Up for?
So, should you be getting out of bed early to take advantage of the pre-market trades? Well, the only person who can really answer that question is you. Premarket sessions have limited liquidity and volume, which also means that large bid-ask spreads are relatively common. A lot of retail brokers may offer the option to invest and spend out of hours, but that doesn’t mean that you should necessarily take advantage of this option.
With liquidity being so thin during the early hours of the
morning, it’s often a better idea to spend the initial hours of the day watching
the market and deciding how you’re going to trade for the rest of the day.
However, if you do think that you can get something out of buying and selling
early, it’s essential to make sure that you stick to your strategy. Don’t push
yourself into behaving differently during the early trading sessions compared
to how you would behave if you were using your standard trading plans. Remember
that every purchase and sale you make needs to have a carefully-chosen idea
behind it.
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