Even if you’ve never traded in stocks before, you still probably know that the market has pre-set trading hours. Unless it’s a national holiday, the trading market in the US is open between the hours of 9:30 am and 4:00 pm from Monday to Friday. Every day, Americans and people from outside the country trade billions of stock shares in those hours alone.
The rapid and flexible nature of the typical trading hours make them the best time to find liquid and efficient trades when you’re getting started in the stock market. However, what you may not realize is that there are opportunities available to trade outside of the standard stock market hours too. These trading times are known as extended trading sessions.
What is Premarket Trading?
If you trade in stocks before the market officially opens, then you’re engaging in premarket trading. On the other hand, if you want to buy and sell stocks after the market closes at 4:00 pm, then you’re investing in after-hours trading.
Both after hours and pre-market trading sessions can last for different amounts of time depending on the broker that you work with. For instance, a lot of brokers allow people to trade in the premarket session between 8:00am and 9:30am, which only gives them an extra hour and a half of trading time. However, there are brokers that can open their early trading sessions at 3 am, or 4 am, giving traders plenty of space to buy and sell stocks.
Although premarket trading has its appeal, it’s important to remember that there are challenges to think about too. For instance, when you compare the number of stock market shares that go through the premarket sessions to the billions of sales that happen in the traditional trading hours, you’ll find that premarket trading isn’t nearly as liquid. Additionally, many experts regard the premarket sessions to be more volatile than their counterparts.
Reacting to News and Premarket Trading
Perhaps the main reason to consider premarket trading over buying and selling during traditional trading hours, is that it gives you a chance to react instantly to announcements from companies or industries that you’re investing in. Companies are often very careful about how they announce important details like earnings reports. They don’t reveal details during standard trading hours, because this can lead to sudden knee-jerk reactions that affect the value of stock.
Usually, big news announcements will be revealed either before the market opens or after it closes. This means that by trading in the extended sessions, you’ll be able to make sure that you respond to announcements when they happen – before anyone else. Obviously, this can present huge benefits if you’re able to buy or sell stock quickly at the right price. However, you’ll still need to find a buyer or someone to buy from. This is what makes premarket trading so challenging.
Not everyone will earn a fortune from premarket trading. However, if you know how to deal with the changes in the marketplace quickly, then after hours trading sessions could be a powerful way to improve your wealth. If you would like to get more insights on the trading industry, check out this CFD trading explained article to see how else you can potentially make a fortune.
Photo credit: Aditya Vyas