PreMarket Trading
Premarket trading occurs during the time period before the stock market opens, which usually happens between 8:00 a.m. and 9:30 a.m EST. Many stock traders focus on how shares of a company perform after the opening bell and completely disregard the premarket trading session.
The major U.S. stock market exchanges open for normal trading from 9:30 a.m. ET to 4:00 p.m. ET, Monday through Friday unless it is a holiday.
Thousands of stock traders are drawn to the exchanges immediately following the opening bell . The stock market is crowded during regular hours of trading which is why some investors have embraced the premarket session, a less crowded time to trade.
However, there are some drawbacks/risks with trading in the premarket which we will cover below.
Premarket Trading Hours
Premarket trading is the trading session that happens before the normal trading session starts. The session allows both institutional investors and individual traders to trade stocks between 4:00 a.m. ET and 9:30 a.m. ET.
Brokers, however, can determine the exact timeframe during which premarket trading takes place. One broker may decide to offer trading running from 4:00 a.m. ET to 9:30 a.m. ET, while another may offer it from 6:00 a.m. ET to 9:30 a.m. ET.
For example, TD Ameritrade offers premarket trading from 8:00 a.m. ET to 9:15 a.m. ET, while premarket trading at Scottrade begins from 6:00 a.m. ET to 9:28 a.m. ET. Some brokerage firms do not offer trading in the premarket at all.
Premarket trading occurs on electronic market exchanges, and it has been growing in popularity since 1990 as investors continue to embrace the idea of trading stocks over electronic communication networks.
In the past, only hedge funds, banks, insurance companies, mutual funds, and other institutional investors were allowed to place premarket orders.
Premarket Trading Tips
Before jumping into trading during the premarket, make sure you know these rules:
- You can only place limit orders
- Orders are only good for that session, they do not carry over to the regular market session
- Premarket sessions are typically much less liquid
- Premarket orders are matched electronically through ECNs
- Brokers can set their own rules for premarket trading, so make sure to check with them!
The platform provided to you by your broker should have tips on how to buy and sell shares during premarket sessions. Premarket orders are not executed as easily as those executed during regular hours.
Brokerage firms only accept limit orders (those directing the firms to sell or buy shares at a given price) in premarket. Your broker will not execute your order if the shares are not trading within the designated limit.
The orders have limitations as well: 25,000 is the maximum number of shares per order. Brokers only honor premarket orders for the precise session in which investors placed them.
There is no guarantee that premarket orders are placed before the opening bell if trading activity is significantly low, but it is certain that they are not carried over into the normal trading hours.
The procedure and cost of trading stocks during premarket hours also depends on the broker.
Please NOTE – It’s very risky to trade the premarket when volume is light because you are susceptible to illiquidity which can make it very hard to exit a position without a lot of slippage. Check out our tradingview page for the latest premarket information.