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What is pre-market?

Pre-market definition

What does pre-market mean? Pre-market is the period before an exchange opens for the official trading day when investors can start to buy and sell assets.

Pre-market trading typically takes place one to two hours before the official session opening, for example in the US between 8:00 and 9:30 Eastern Time on the New York Stock Exchange (NYSE) and between 8:15 and 9:30 Eastern Time on the Nasdaq stock market.

Where have you heard of pre-market?

Traders and investors typically use pre-market and after-hours trading on electronic platforms to buy and sell assets in response to breaking news and events that occur outside the regular trading day, for example, a company’s earnings report or geopolitical events. Pre-market trading can give an indication of the direction of price moves after the open.

You will likely have heard about pre-market trading activity in media coverage of the stock market and major national or international events. Financial publications typically publish pre-market summaries to highlight major price moves ahead of the market open.

What do you need to know about pre-market?

Pre-market trading is characterised by limited volumes of buying and selling activity and wide bid-ask spreads. This can make prices volatile, while the lack of liquidity increases the risk of making an unprofitable trade.

Traders and investors monitor pre-market prices to get an indication of where the market will open and prepare their strategy for the trading day. There are pre-market stock screener tools available online that filter stocks for the most actively traded and the largest price moves in the pre-market hours to help with analysis.

Share prices will often rise or fall sharply in pre-market trading in response to a company’s financial results that exceed or fail to meet expectations. However, it is important to be aware that it is often the case that share prices can be much higher or lower pre-market than at the previous close, only to change direction once the market officially opens.

Pre-market trading is considered risky for inexperienced traders and it is typically institutional investors, traders and high-net-worth individuals that trade in the pre-market period.

Trading in pre-market hours is a relatively recent development. The NYSE, which officially trades between 8:00 and 16:00 Eastern Time in the US, launched pre-market trading in 1991 in response to the growth of international exchanges that enabled investors to trade at all hours.

After-hours trading allows investors to continue to buy and sell assets after the market closes, typically until 18:30 Eastern Time on the NYSE. As with pre-market activity, after-hours trading can see limited liquidity and increased risk.

The rise of electronic trading platforms has also made it easier for exchanges to extend their trading hours. Some platforms allow investors to start trading the US markets as early as 4:00 Eastern Time, although it is worth noting that they may limit full order functionality out of hours.

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