While most stock trading takes place during a stock market’s official opening hours, events that can affect a stock’s price can happen outside of this period. If you want to take advantage of such opportunities, you’ll need to find a broker that offers out-of-hours trading. Read on to find out more about pre-market stocks and how to buy and sell before markets open.
What is pre-market trading?
The world’s stock markets have official hours during which they are open for investors to buy and sell shares, or to speculate on future stock performance through spread-betting or CFDs. For example, the London Stock Exchange’s trading hours are from 8am to 4.30pm.
Pre-market trading happens before a stock market officially opens for the day. It lets investors buy and sell stocks ahead of the market opening.
It’s also possible to trade stocks after a market closes. This is known as after-hours trading.
What are pre-market stocks?
We appreciate that this is probably blindingly obvious, but just for the avoidance of doubt pre-market stocks are stocks that are traded in pre-market hours. The stocks you can trade in pre-market will depend on the broker or share-dealing platform you use, and what stocks they make have access to for trading.
How do I trade pre-market stocks?
During normal trading hours, buy and sell orders are placed directly on the relevant stock exchange. Pre-market trading, however, works a bit differently.
You’ll still need to make trades via a broker or online share dealing platform. But, unlike standard-hours trades, buy and sell orders are placed using a sort of virtual marketplace for buying and selling stocks. In the US, these virtual marketplaces are often called electronic communication networks (ECNs), or sometimes alternative trading systems (ATS). In most of Europe, they’re known as multilateral trading facilities (MTFs).
The key difference is that, unlike with standard-hours trading, with after-hours stocks you can only place limit orders. Limit orders set a price on on how much you’re willing to buy or sell an asset for. Your order will only be fulfilled if it can take place at the limit you’ve set (or better).
Why are stocks traded before the markets open?
While most trading happens during standard market hours, the reality is that not everything that affects a stock’s performance is going to take place between stock-market imposed time limits. Natural disasters and macroeconomic events rarely happen to a fixed schedule. And even events that are more within a company’s control, such as the announcement of new financial results, may happen before a stock market officially opens.
Pre-market trading gives on-the-ball traders the opportunity to take full advantage of price changes that happen before the markets open. For some, this is a definite benefit given that prices tend to move rapidly when news breaks early. The speed of price changes is often the result of lower trading volumes and liquidity.
All that said, for long-term investors who embrace a buy-and-hold approach, any short term volatility in the stocks they hold will typically be ironed out in the long term. So pre-market trading tends to be the reserve of experienced investors, including those with a focus on day trading.
As is usually the case with investing, the increased opportunity for reward offered by pre-market trading comes with a bunch of risks. Some are associated with the fact that there are fewer people buying and selling at that time. This can make for lower liquidity and, given that you can only trade pre-market stocks based on limit orders, there’s no guarantee that you’ll be able to buy or sell at the price you want.
Prices tend to be more volatile when trading outside of normal hours, too. Outside of these hours, breaking news can have a dramatic impact on share price, causing them to shoot up or down. This can make for quick wins if you get it right. But there’s also the risk that you might net what seems a great deal only for a stock’s fortunes to reverse just as rapidly. It’s a risky strategy. Combined with low liquidity, this could leave you left with stocks you’re desperate to offload, but can’t, for example. High volatility and/or low liquidity can also lead to a wider spread (the difference between the buy and sell price).
Do all brokers offer pre-market trading?
After-hours trading requires access to special systems and involves third parties, so it can involve more effort and expense for brokers to offer than regular trading. Because of this, while many brokers offer pre-market trading, not all do. It also means that you may need to pay more for pre-market trades than those that take place during normal stock market opening times.
What are the stock market pre-market hours?
In the UK, the London Stock Exchange officially opens at 8am. Different brokers may offer slightly different pre-market trading hours, but you can probably expect to be able to buy and sell pre-market stocks between around 5 and 7am.
If you’re looking to trade US stocks, standard trading hours for the two biggest US exchanges (the New York Stock Exchange and the Nasdaq) are 9.30am to 4pm Eastern Daylight Time (ET). That’s 2.30pm to 9pm UK time. Typical pre-market trading hours for US stocks are 8am to 9.30am ET (1pm to 2.30pm UK time), though you may find some brokers that let you trade earlier than this.
What stocks are available for pre-market trading?
The stocks available for pre-market trading will depend on the share dealing provider you use. Check that any potential brokers or platforms offer the stocks you’re interested in trading before you open an account. You should be able to an your online platform’s stock listings or search function to find out what after-hours stocks it lets you buy and sell.
Pros and cons of pre-market stocks
Pros
Able to trade outside of standard hours, which may be more convenient
Opportunity to make the most of price changes that take place before a stock market officially opens
Cons
Stock prices likely to be volatile and potentially quite different to normal trading hours
Less liquidity as fewer trades take place pre-market.
Not every broker offers pre-market trading.
Bottom line
If you want to take advantage of the stock price swings that can take place before a stock market opens, or a stock market’s standard hours aren’t terribly convenient for you, then pre-market trading may be of interest. But not every provider offers it, it can be more expensive, and it carries a number of risks due to high price volatility and typically low liquidity. So it’s likely to be best for experienced investors who know what they’re doing. If you’re investing for the long term with a buy-and-hold strategy, you’re probably fine to stick with trading during standard hours.
Frequently asked questions
The ability to trade pre-market lets investors react to company news and events before the markets officially open. It might also be more convenient if it’s difficult to trade during official stock market hours, because of a time difference for an international market, for example. But it comes with a higher-than-usual level of risk, so is best negotiated by experienced investors.
Pre-market trading (along with after-hours trading) can certainly influence a stock’s opening price when the stock market officially opens. The opening price is calculated during a pre-market window just before markets open. The opening price can differ from the previous day’s closing price depending on its supply and demand during out-of-hours trading.
The risks of pre-market trading – including high volatility and low liquidity – mean that it’s typically suitable for experienced investors with the knowledge and time to keep close track of stock performance and invest quickly and confidently.
Pretty much. Advances in technology have meant out-of-hours trading, which used to be the preserve of institutional investors, is now available to retail investors from many brokers.
All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
Ceri Stanaway is a researcher, writer and editor with more than 15 years’ experience, including a long stint at independent publisher Which?. She’s helped people find the best products and services, and avoid the pitfalls, across topics ranging from broadband to insurance. Outside of work, you can often find her sampling the fares in local cafes.
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