Sat. Jun 15th, 2024

Pre-market trading, as the name suggests, denotes a trading session that occurs prior to the regular operating hours of the stock market.

Investors choose to engage in pre-market trading for a range of strategic reasons. Their primary objective is to secure a competitive advantage by swiftly responding to news releases that occur beyond the conventional market hours. 

For instance, numerous companies release their earnings reports either before the market opens or after it concludes its regular trading session. 

Consequently, a stock’s inherent value is in a constant state of flux, irrespective of the market’s official operating hours. By participating in premarket trading, investors position themselves to navigate these fluctuations in a stock’s intrinsic value as they unfold.

Advanced Micro Devices, Inc. (NASDAQ:AMD) in the Premarket

On November 2, 2023, Advanced Micro Devices, Inc. (NASDAQ:AMD) showcased an intriguing pre-market performance that captured the attention of investors. 

At the last market’s closing stock price was $108.04 with a 15.34% increase. Meanwhile this morning at 6: 42 AM AMD Premarket Price was $$108.78 reflected a slight surge of 0.68%. 

This early morning trading movement exemplifies the dynamic nature of stock markets, where prices can fluctuate even before the official trading hours commence. 

It provides a snapshot of investor sentiment and sets the stage for a day of potential market fluctuations.

Risks of Trading in the Pre-Market Session

While pre-market trading can offer certain advantages, it also comes with its own set of risks.

Inability to see or act upon quotes

Some firms only allow investors to view quotes from the one trading system the firm uses for after-hours trading. Investors should check with their brokers to determine which firms’ quotes they can see and trade off.

Liquidity Challenges: 

In the typical trading hours, many stocks enjoy robust liquidity, facilitating seamless transactions between buyers and sellers. However, in after-hours trading, the trading volume for certain stocks may dwindle, presenting a potential hurdle for executing trades with ease.

Larger quote spreads

Less trading activity could also lead to wider spreads between the bid and ask prices,

making it more difficult for investors to execute their orders or get a favorable price.

Price volatility: 

Stocks with limited trading activity may experience greater price fluctuations in the pre

market session than during regular trading hours.

Uncertain prices: 

The prices of some stocks traded in the pre-market session may not reflect the prices of

those stocks during regular hours.

Bias towards limit orders

Many electronic trading systems currently only accept limit orders in the pre-market and

after-hours sessions. Limit orders might cause investors to miss out on having a trade filled.

Competition with professional traders: 

Many of the pre-market traders are professionals affiliated with large institutions such as

mutual funds, who might have access to more information than individual investors.

Computer delays

Like online trading, investors may encounter delays or failures in getting their orders

executed during after-hours, including orders to cancel or change their trades.

Conclusion: Understanding Pre-Market Trading

If you’re seeking to gain a competitive advantage in your stock trading, contemplating trades during the pre-market session could be a viable strategy. Nonetheless, it’s crucial to bear in mind the supplementary risks linked to this form of trading. 

It’s advisable to consult your broker to ascertain whether they provide after-hours trading and to understand the specific requirements for eligibility.

Differences Between Premarket Trading and Regular Trading

Trading in the pre-market session can be quite different from regular trading. For one, competition is often more intense during pre-market hours, as relatively few individual investors trade during this time. 

This can put individual investors at a significant disadvantage compared to professional traders, who often have access to more information.

Additionally, different rules often apply to pre-market trading. For instance, different electronic communication networks (ECNs) and brokerages often have different rules for pre-market trading. 

Limit orders are common among brokerage firms that accommodate pre-market trading. With a limit order in place, trades only go through when the stock reaches a specific price or higher.

The Bottom Line

While pre-market trading can represent an opportunity for experienced and sophisticated investors, it’s also much riskier than trading during regular hours. 

Consequently, it’s a more prevalent practice for investors to observe pre-market trading activity rather than actively partake in it. 

If you are contemplating entering the realm of pre-market trading, having a seasoned professional by your side could prove to be highly advantageous.

Investing Tips

Finding the right financial advisor doesn’t have to be hard. SmartAsset’s free tool can match you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. 

If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

Don’t know how much investment risk you can tolerate? SmartAsset’s asset allocation calculator can help you determine your investment profile and see which investments might be right for your portfolio.

By Richard Maxwell

For Any Inquiry Contact Us Here :- [email protected]