If you are new to the trading market, you may have heard the term "pre-market trading" and wondered what it is. Actually, it is a great way to get a jump on the competition and snatch up some good deals before everyone else gets their hands on them.
In this article, we are going to understand what pre-trading is, its advantages, and how it works.
The definition of pre-market trading
The pre-market trading is the process of buying and selling certain assets before 9:30 am EST.
It is part of extended hours, where people do their market watching after 4 pm-close or during any other time they want in order to get an edge on others who might be thinking about investing too late into that day.
This can be an excellent time to take advantage of any trends that may have been revealed during overnight speculation, especially if they predict good-performing stocks or asset classes during regular session hours.
How does pre-market trading work?
Market makers and specialists typically don’t participate in pre-market trading.
The main role in it is played by ECN, which are computerized trading systems.
They match orders between buyers and sellers without any human intervention.
If an investor doesn't get what they want then only some assets might be bought at or sold for higher prices than normal while others may sell cheaper due to supply exceeding demand so markets can quite fluctuate during these times. Have a look at cm trading review which offers the best trading platforms all around the globe with pre-market trading available.
Pros and cons of pre-market trading
Below are some advantages and disadvantages pre-market trading has:
It greets morning events - The markets are always volatile and news can quickly change prices.
For this reason, it is important to be aware of what happens in the market outside traditional trading hours if you want a better chance at winning your investments.
And pre-market trading allows you to respond to the early morning news and events.
Suitable trading times - Some people are not able to trade during the traditional session.
For them, pre-market trading starts before that begins which is very convenient for that type of trader.
Liquidity is not enough - The lack of liquidity during pre-market trading can be a limiting factor for investors.
The smaller number and wider range in prices mean that you are more likely to experience higher volatility when investing early on before markets have stabilized somewhat.
High competition from professionals - When you think of pre-market trading, it is hard not to associate with professionals.
They are frequently more experienced and knowledgeable than the average investor and the competition with them will be more difficult.
As you see, pre-market trading is a way for investors to buy and sell assets before the market officially opens.
It can be a good option for some people, but there are also pros and cons to consider.
If pre-market trading is something you are interested in, start trading with it – but always do your own research first. For starters see fxtm minimum deposit to get to know regulated Forex brokers.
Author George Rossi
George is the Chief Market and Broker Analyst at brokertested.com.
Prior to being recruited by brokertested.com, I served SVS Securities as Chief Market Analyst for two years. Earlier, he joined Morgan Stanley in Nov 2013 as Research Analyst.
George is a well-rounded financial services professional experienced in fundamental and technical analysis, global macroeconomic research, foreign exchange and commodity markets and an independent trader.