If you've learned something important about the stocks and securities in your financial portfolio, and you're keen to start trading, you might not need to wait until the market opens to begin. Although most people reserve their trading activity until the stock market official opens each day, there are also options available for people who need to get ahead of the curve too. Pre-market trading is a form of trading that occurs before the stock market opens. Depending on the kind of broker that you're working with, you could even begin buying and selling your securities as early as 4 am, several hours before the market officially rings its opening bell.
Common Uses for Premarket Trading
One way to use the premarket is to get ahead of the curve when you have some important information about a stock that you're investing in. For instance, many corporations release earning announcements after the market closes, to help reduce the impact on their stock prices. If the earnings news differs from your expectations, then you might find that the stock will rise or fall in value during the next trading day. A trader in the premarket can buy or sell early before the rest of the market reacts to the news.
There are also plenty of other events that can trigger activity in the premarket, such as legal news, or economic changes caused by things like overseas events and political instability. However, the low liquidity and high volatility of the pre-market also make this environment a dangerous place for beginners. If you can't handle a lot of risk in your trading portfolio, then another common way to use the premarket is as a source of information.
Many investors monitor the trading that takes place in the premarket to see how other people are responding to market news and keep an eye on where securities are heading. This is an easy way to get an insight into where trading activity might go in the next day. By monitoring the premarket, you can get a feel for the biggest movers in a specific space and build a trading strategy accordingly.
Who Should Trade in the Premarket?
For a long time, it was difficult for anyone in the US to access premarket trading. The stock exchanges in other locations around the world started to open up to the idea of electronic communication networks a little while before America, and eventually, the NYSE decided to take advantage of the new trend. NYSE Arca is an ECN that was built when the New York Stock Exchange merged with one of the USA's first ECN solutions.
Today, virtually anyone with a trading account can trade in the premarket. However, it's essential to have the right strategy in place for how you're going to make the most of your money. Just like any other kind of trading, you'll need to ensure that you know how to read the market. Additionally, it may take time to learn how to get ahead of the risks of low liquidity and high volatility that are so common in this space.
