How Does Premarket Trading Really Work?

Even if you are still relatively new to trading in stocks and securities, you are probably familiar with the concept of the opening hours of various markets. Just like stores and businesses, the stock exchange has set hours in which people can operate to purchase and sell their assets. These hours can be more chaotic on some days than others, depending on what’s happening in your chosen industry.

In some cases, if you work with a special kind of brokerage, you can even trade before the market opens. This is something known as premarket trading, which permits investors to purchase and sell their assets before the market opens officially for the rest of the world, or a specific country. There are pros and cons to this kind of strategy, so here’s a guide to what you need to know.

Addressing the Early Morning Market

A benefit of trading in the premarket is that you have a chance to sell and buy stocks before the official market begins. You can react to news and events that happen when the exchange is closed, and hopefully save yourself some significant money on losses, or make a significant amount of cash from the right purchases. Of course, there are positives and negatives to any money-making strategy.

The premarket environment opens usually at around 8am, whereas the standard market opens around 9:30 am EST. There are increasingly large numbers of brokerages who can also give you the freedom to get into the market much earlier than this. However, it’s worth noting that the earlier in the morning you start buying and selling, the lower the liquidity is likely to be.

Although it’s been around for a few decades now, this strategy is something widely regarded as a new development in the trading world for many professionals. There are still experts who believe this solution isn’t a good idea, while others feel that it’s one of the best ways to get ahead of the competition. Before the online world emerged to give us all easier access to online trading solutions, the premarket environment would have been a lot harder to access, as you would have needed to get a professional to seek out other people willing to trade in a closed environment.

Should You Consider Premarket Trading?

Getting ahead of the curve and logging into your brokerage in the earlier hours of the day generally is not something you will want to do all the time. Ultimately, it can be difficult to do much in an environment where liquidity is often low, and you do not always get a good vision of how the market is acting from a natural perspective.

However, if you do have a piece of information that you need to respond to quickly, a premarket strategy can be a great solution. This is an easy way to jump into the marketplace and start making sales and purchasing assets before you lose an opportunity. The key to success, like most things with trading, is knowing how to leverage the marketplace properly and use your money wisely.