What is Pre-Market Trading and How to Trade Pre-Market?

Pre-market trading hours refer to the period before the official opening of a financial exchange when trading in certain securities, such as stocks, occurs. These hours typically take place in the early morning, before regular trading hours commence.

Pre-market trading allows investors and traders to react to news events, corporate earnings reports, and other market-moving developments that may occur outside of regular trading hours.

Regular trading hours, on the other hand, are the standard, officially designated hours during which a given exchange is open for trading. These hours typically encompass the primary trading session when the majority of trading activity occurs.

The pre-market and after-hours trading sessions are often referred to collectively as the “extended” trading sessions. Together, they allow market participants to buy and sell securities before the official market opening and after the closing bell. Learn more about after hours trading, how it works and how to trade after hours.

Pre-market trading hours refer to the period before the official opening of a financial exchange when trading in certain securities, such as stocks, occurs. These hours typically take place in the early morning, before regular trading hours commence.

Additional details on pre-market trading - and how it works - are highlighted below:

• Time Period: Pre-market trading typically takes place in the early morning hours before regular trading hours begin. The exact start and end times can vary by exchange, but it generally occurs a few hours before the regular market opens.

• Participation: Pre-market trading is available to certain market participants, including institutional investors, retail traders with access to pre-market trading platforms, and market makers. It may not be accessible to all traders, depending on their brokerage and trading permissions.

• Eligible Securities: Not all securities are necessarily available for pre-market trading, and eligibility criteria may vary by exchange or brokerage platform. Generally, stocks with significant trading volumes and liquidity are more likely to be available for pre-market trading.

• Price Discovery: Prices during pre-market trading are determined by the interaction of buy and sell orders, much like in regular trading hours. However, because of lower trading volume, bid-ask spreads can be wider, and price movements may be more volatile.

• News Impact: Pre-market trading is often driven by news events, such as corporate earnings reports, economic data releases, or geopolitical developments. Traders react to this information, leading to price changes before the official market opening.

• Liquidity: Liquidity in pre-market trading is generally lower than during regular trading hours. That often means there are fewer participants, and it can be more challenging to execute large orders without significantly impacting prices.

• Order Types: Traders can typically use various order types during pre-market trading, including market orders and limit orders. However, they should be aware that not all order types available in regular trading hours may be offered during pre-market trading.

• Trading Platforms: To participate in pre-market trading, traders often need access to specialized trading platforms or brokerage accounts that support pre-market orders. At tastytrade, you have the flexibility of trading before and after standard market hours with stock & ETF orders. tastytrade's extended hours session is 1.5 hours before the open, and four hours after the market closes each trading day. Click here for more information.

• Extended Hours Trading Risks: Pre-market trading carries specific risks, including lower liquidity, potentially wider spreads, and the potential for larger price gaps due to news events. Traders should exercise caution and be aware of these risks when participating in pre-market trading.

It's important to note that the rules and regulations governing pre-market trading can vary by exchange and region. Traders interested in participating in pre-market trading should check with their brokerage firm, or the specific exchange, for details on available securities, trading hours, and any additional requirements or restrictions.

The specific start time of pre-market trading can vary depending on the exchange and its rules. However, pre-market trading generally begins several hours before the regular market opening.

This initial period is often referred to as the "normal" pre-market trading hours. During this time, select securities are available for trading, and traders can react to news events and corporate announcements that may have occurred outside of regular trading hours.

Additionally, there may be a second, shorter session referred to as "extended hours" or "extended pre-market trading," which can begin even earlier, usually in the very early morning hours or even the previous evening. During extended pre-market trading hours, trading activity is typically more limited, and not all securities may be available for trading.

For the New York Stock Exchange and the Nasdaq Stock Market the “normal” and “extended” pre-market trading hours are as follows:

New York Stock Exchange Extended Hours

• Extended Pre-Market Trading Hours: Extended pre-market trading on the NYSE typically begins at 4:00 AM Eastern Time (ET) and lasts until the regular market opens at 9:30 AM ET.
• Normal Pre-Market Trading Hours: The NYSE also offers “normal” pre-market trading, known as the "Early Trading Session," which starts at 7:00 AM ET and ends at 9:30 AM ET. This is a shorter session within the overall pre-market trading hours

.

Nasdaq Stock Market Extended Hours

• Extended Pre-Market Trading Hours: Extended pre-market trading on the Nasdaq generally starts at 4:00 AM ET and concludes at the regular market opening at 9:30 AM ET.
• Normal Pre-Market Trading Hours: The “normal” pre-market trading hours on the Nasdaq are the same as the “extended” pre-market trading hours, beginning at 4:00 AM ET and running until 9:30 AM ET, aligning with the regular market opening.

Investors and traders may want to periodically check the exact hours of the extended trading sessions because trading hours can change, and additional sessions may be introduced over time. Moreover individual brokerage firms often have their own policies regarding access to pre-market trading.

At tastytrade, you have the flexibility of trading before and after standard market hours with stock & ETF orders. tastytrade's extended hours session is 1.5 hours before the open, and four hours after the market closes each trading day. Click here for more information.

Trading during the extended sessions (pre-market or after-hours) can differ from the regular trading session in several notable ways. One significant difference is the lower liquidity observed during extended hours. With fewer market participants engaged, trading volumes tend to be lower, resulting in wider bid-ask spreads and reduced order flow. This can make it more challenging to execute large orders without impacting prices significantly.

Another key distinction is the increased volatility that often characterizes extended trading hours. Price swings can be more pronounced during this time, especially in response to breaking news or significant events that occur outside regular hours. Traders should be prepared for rapid fluctuations and the potential for abrupt changes in market sentiment.

Additionally, not all securities are available for trading during extended hours, as eligibility criteria may vary by exchange or platform. This means that traders need to check which specific stocks, ETFs, or options contracts are accessible during these sessions. Moreover, some order types commonly used in regular trading hours may not be available during extended hours, limiting traders to using market orders and limit orders.

Extended trading sessions also tend to attract a different set of participants, including more experienced traders and institutional investors. Retail investors may therefore find themselves trading alongside professional traders who are more active during these hours, potentially altering the overall trading dynamic. Investors and traders should be aware of these differences and adapt their strategies, risk management, and expectations as necessary when participating in extended trading hours.

Some of the key considerations for pre-market and after-hours trading sessions are detailed below:

• Stay Informed: Be well-informed about news and events that could impact the stocks or securities you plan to trade. Earnings reports, economic data releases, and company announcements can have a significant effect on prices.
• Understand the Risks: Recognize that pre-market and after-hours trading can be riskier due to reduced liquidity. Prices can be more erratic, and spreads wider. Only trade during these sessions if you have a clear strategy and risk management plan in place.
• Consider Using Limit Orders: In illiquid markets, use limit orders to specify the price at which you are willing to buy or sell. Avoid market orders, which can result in unfavorable fills due to price gaps.
• Monitor Market Depth: Keep an eye on the order book and market depth to gauge demand and supply levels. This information can help you anticipate potential price movements.
• Consider Setting Stop-Loss Orders: Implement stop-loss orders to limit potential losses. Determine your risk tolerance and set stop-loss levels accordingly.
• Watch for Overnight Gaps: Overnight gaps, where the price at the open differs significantly from the previous day's close, are common in extended trading sessions. Be prepared for such gaps and have a plan in place to manage them.
• Consider Starting with Smaller Positions: If you are new to pre-market and after-hours trading, consider starting with smaller positions until you gain experience and confidence.
• Focus on High Liquidity Listings: Focus on stocks or securities that are actively traded during extended hours. Highly liquid assets tend to have narrower spreads and are generally easier to trade.
• Consider Paper Trading: If you are unsure about your pre-market and after-hours trading approach, consider paper trading (e.g. simulated trading without real money) to practice and develop your strategies.
• Review and Learn: After each extended trading session, review your trades and assess what worked and what didn't. Learn from your experiences to improve your approach.

Some of the common strategies utilized during the extended trading sessions are highlighted below:

• Gap Trading: Taking advantage of price gaps caused by overnight news or events.
• Earnings Plays: Trading based on earnings reports released before the market opens, or after the market closes.
• News Breakouts/Momentum: Identifying and trading stocks that react strongly to breaking news during the pre-market and/or after-hours sessions.
• Scalping: Scalping opportunities may sometimes present themselves during the extended trading sessions.

Extended trading sessions, which include both pre-market and after-hours trading, offer both benefits and risks to market participants that are active during these periods.

Some of the key benefits and risks associated with the extended trading sessions are highlighted below.

Benefits of Pre-market Trading

• React to News: Extended trading hours allow market participants to react to breaking news and corporate earnings reports that are released outside regular trading hours. This can provide an opportunity to adjust positions and capitalize on price movements driven by significant events.
• Flexibility: Extended hours trading provides flexibility for traders with different schedules. Those who cannot participate in regular trading hours due to work or other commitments can engage in extended sessions to manage their portfolios.
• Global Trading: Extended trading allows market participants to respond to events and developments that occur in international markets while their local markets are closed. This global perspective can be valuable for international investors.
• Opportunity for Gap Moves: Price gaps can occur between the previous day's closing price and the opening price of the next regular session. Traders can take advantage of these gaps by participating in extended sessions to capture potential profits.

Risks of Pre-market Trading

• Lower Liquidity: Extended trading sessions typically have lower trading volumes and reduced liquidity compared to regular hours. This can result in wider bid-ask spreads and make it more challenging to execute large orders without impacting prices.
• Higher Volatility: The reduced number of market participants during extended hours can lead to increased volatility, particularly in response to news events. Rapid and unpredictable price movements can pose risks to traders.
• Limited Securities: Not all securities are available for trading during extended hours, and eligibility criteria may vary by exchange or platform. Traders need to be aware of which assets are accessible.
• Limited Order Types: Some order types that are commonly used during regular hours may not be available during extended hours. Traders may be restricted to using market orders and limit orders.
• Professional Traders: Extended hours often attract more experienced traders and institutions, potentially altering the overall trading dynamic. Retail investors may find themselves trading alongside professional traders with a different level of expertise.
• Gap Moves: Price gaps can occur between extended trading sessions and regular trading sessions. These gaps may represent an increased risk for market participants that are active during the extended sessions.

Trading during the extended sessions, whether it be pre-market or after-hours, is usually available to institutional investors, active traders, and some retail brokerage clients.

At tastytrade, you have the flexibility of trading before and after standard market hours with stock & ETF orders. tastytrade's extended hours session is 1.5 hours before the open, and four hours after the market closes each trading day. Click here for more information.

Pre-market trading hours refer to the period before the official opening of a financial exchange when trading in certain securities, such as stocks, occurs. These hours typically take place in the early morning, before regular trading hours commence.

Pre-market trading allows investors and traders to react to news events, corporate earnings reports, and other market-moving developments that may occur outside of regular trading hours.

The specific start time of pre-market trading can vary depending on the exchange and its rules. However, pre-market trading generally begins several hours before the regular market opening. This initial period is often referred to as the "normal" pre-market trading hours. During this time, select securities are available for trading, and traders can react to news events and corporate announcements that may have occurred outside of regular trading hours.

Additionally, there may be a second, shorter session referred to as "extended hours" or "extended pre-market trading," which can begin even earlier, usually in the very early morning hours or even the previous evening. During extended pre-market trading hours, trading activity is typically more limited, and not all securities may be available for trading.

For the New York Stock Exchange (NYSE) and the Nasdaq Stock Market the “normal” and “extended” pre-market trading hours are as follows:

New York Stock Exchange (NYSE)

• Extended Pre-Market Trading Hours: Extended pre-market trading on the NYSE typically begins at 4:00 AM Eastern Time (ET) and lasts until the regular market opens at 9:30 AM ET.
• Normal Pre-Market Trading Hours: The NYSE also offers “normal” pre-market trading, known as the "Early Trading Session," which starts at 7:00 AM ET and ends at 9:30 AM ET. This is a shorter session within the overall pre-market trading hours

.

Nasdaq Stock Market (Nasdaq)

• Extended Pre-Market Trading Hours: Extended pre-market trading on the Nasdaq generally starts at 4:00 AM ET and concludes at the regular market opening at 9:30 AM ET.
• Normal Pre-Market Trading Hours: The “normal” pre-market trading hours on the Nasdaq are the same as the “extended” pre-market trading hours, beginning at 4:00 AM ET and running until 9:30 AM ET, aligning with the regular market opening.

During pre-market trading, liquidity tends to be lower, and trading volumes reduced as compared to regular hours. This can result in wider bid-ask spreads and limited order flow, making it important for traders to use limit orders and exercise caution when executing trades. The lower liquidity can also lead to increased price volatility, especially in response to news events, making risk management a critical aspect of pre-market trading.

Not all securities are available for trading during pre-market hours, and eligibility criteria may vary by exchange or platform. Traders should check which specific assets are accessible during these sessions. Additionally, some order types commonly used during regular hours may not be available during pre-market trading, which further emphasizes the need for traders to adapt their strategies.

Some of the common strategies utilized during the pre-market trading hours are highlighted below:

• Gap Trading: Taking advantage of price gaps caused by overnight news or events.
• Earnings Plays: Trading based on earnings reports released before the market opens, or after the market closes.
• News Breakouts/Momentum: Identifying and trading stocks that react strongly to breaking news during the pre-market session.
• Scalping: Identifying and profiting from small price movements in assets over a very brief time frame. Scalping opportunities may sometimes present themselves during the extended trading sessions.

In general, pre-market trading sessions offer a window of opportunity for those seeking to stay informed and nimble in the face of financial developments that occur outside of regular trading hours. These sessions cater to investors and traders looking to react to news, earnings reports, and global events, while also allowing for a more flexible trading schedule.

But investors and traders active in the pre-market sessions should be mindful of the lower liquidity, heightened volatility, and potential cost implications that come with pre-market trading, and should prepare their strategic approach and risk management plan before joining these sessions.