What Is Premarket Stock Trading?

U.S. securities markets ring the opening bell at 9:30 a.m. EST, Monday-Friday. But an increasing number of brokers (particularly online brokers) permit premarket trading as early as 4 a.m. Extended trading hours offer greater flexibility and more buying opportunities – and increased risk.

What is premarket stock trading?

Premarket stock trading takes place before regular market hours, which start at 9:30 a.m. EST. Certain brokerages permit investors to trade as early as 4 a.m.

These extended hours allow investors to react to overnight and early morning news ASAP. Developments like corporate earnings, management decisions and national or international events may all spark activity in various industries or stocks.

Market experts, day traders and regular investors also monitor premarket activities to gauge the market’s direction and volatility. In some cases, early-morning price and volume changes can foreshadow later-day activity.

What time does premarket stock trading start?

Premarket stock trading takes place before the regular market session – anywhere from 4 a.m. to 9:30 a.m. EST. (Regular hours run from 9:30 a.m. to 4 p.m. EST.) Note that exact premarket hours vary by brokerage: while some permit 4 a.m. trades, others hold off until 8 a.m.

What securities are traded during premarket sessions?

Securities listed on the NYSE and Nasdaq exchanges may be eligible for premarket trading, including stocks, ETFs and mutual funds. Bonds also enjoy a premarket service, though bonds’ early hours run from 4 a.m. to 8 a.m.

However, only the largest and most liquid assets are likely to trade during this period. Assets like small-cap stocks and securities with a limited float or trading volume may not trade premarket. Additionally, options are not available for premarket trading at all.

How does premarket trading work?

Premarket trades must be placed through electronic markets, such as an electronic communications network (ECN). Individual brokerages operate ECNs to connect buyers and sellers instead of routing through a traditional stock exchange.

Because premarket trading often experiences low volume and high price volatility, most brokers require the use of limit orders. Limit orders allow investors to set minimum and/or maximum trade prices, slightly reducing price risk.

If an ECN can’t meet the limit price by market open, the order will likely be canceled. Premarket trades that execute are generally processed as “same-day” trades.

How to premarket trade with your brokerage

Every brokerage sets its own policies and restrictions for where, when and how to premarket trade.

To get started, you’ll need to access the premarket trading section of your brokerage’s website or app. From there, you should be able to specify which security you’d like to trade in terms of dollars or shares. Brokerages that require limit orders will let you set a minimum and/or maximum price.

After placing your trade, your brokerage will send your order through their ECN, which will attempt to find a counterparty for your trade.

How to see premarket stock trading prices

Nowadays, you can type “[company name] + stock” into Google and see a chart of current and past market prices. Individual brokerages may also reflect stock prices in real time when you’re ready to transact. Common sites like MarketWatch and Nasdaq also show premarket stock quote data.

But a word of caution: if you’re not sure where to go to see premarket stock trading prices, you’re probably not ready for the risk that premarket trading entails.

History of premarket stock trading

Premarket trading has only been available to retail investors since the late 1990s..

Back in the early 1990s, market globalization saw exchanges in London and Tokyo begin to compete directly with domestic exchanges like the NYSE. In response, the NYSE extended trading hours marginally in June 1991.

Initially, the extension only applied to after-hours trades, and only for institutional and high net worth investors. But as globalization marched on, exchanges added premarket hours to permit longer trading days. Similarly, the development of ECNs allowed retail investors to join extended trading hours within a few years.

Pros of premarket trading

Premarket trading offers three big perks to investors:

  • The opportunity to beat the broader market: Premarket hours allow investors to react to overnight or early morning developments before markets open.  
  • Greater flexibility: If your schedule conflicts with regular market hours, you can still take an active role in your portfolio in the premarket. 
  • (Potentially) favorable prices: Investing premarket can (but doesn’t always) offer the day’s best prices. However, it’s important to note that these patterns may reverse and eliminate potential gains during regular hours. 

Cons of premarket trading

While advantages exist, most experts advise retail investors to limit or avoid premarket trading due to the not-insignificant downsides. These may include:

  • Limited liquidity: Since fewer investors and securities trade premarket, lower trading volumes can present liquidity problems. 
  • Price volatility: Premarket prices can swing on a dime and often diverge from regular session prices. 
  • Wider bid-ask spreads: Thanks to low liquidity and high price volatility, premarket orders tend to see wider gaps between desired buying prices and offered selling prices. (The bid-ask spread.) 
  • No price obligations: During regular hours, broker-dealers must obtain the best possible prices across exchanges and networks. But premarket, investors may be limited to their broker’s own ECN, which limits the price pool substantially. 
  • Not all limit orders will execute: Many brokers only permit limit orders to protect investors from price volatility. While investors won’t be surprised by unexpected prices, limit orders that don’t execute by market open may expire. 
  • Expert competition: Premarket trading hours are dominated by institutional, professional and otherwise wealthy investors with greater access to information and resources. Their sizable presence allows them to make faster, better-informed moves than retail investors and further tilts outcomes in their favor.

How can premarket stock trading fit into a long-term investment strategy?

Premarket stock trading is typically more competitive – and more limited – than investing during regular hours.

Still, some investors use premarket hours to “get ahead” of the regular session by acting on weekend and overnight news. They may do this daily, weekly, or when they see a good deal on the horizon. Some may even score better prices by investing before the rest of the market wakes up.

However, these strategies typically involve managing your portfolio more actively than experts recommend for retail investors. Instead, you might stick with monitoring premarket activity to gauge potential market movements in the later session.

Don’t worry about premarket trading with Q.ai

Premarket stock trading hours provide both opportunity and risk for retail investors. Aside from the limits imposed by brokers, you also have to contend with high volatility and competition for scarce assets. You’ll likely see better results by waiting for regular markets to open and sticking with your long-term strategy.

If you want to take advantage of more active trading strategies that employ risk management tools, look no further than Q.ai.

Q.ai’s artificial intelligence makes trades at times and in securities that our AI models predict will be most advantageous. With our AI-backed, data-driven Investment Kits, you can invest like a hedge fund – without taking unnecessary premarket risks.

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