Should You Add Premarket Trading to Your Strategy?

The stock market is one of the best places to start trading and earning wealth if you’re a beginner to the world of active investing. However, there’s a lot to learn as a trader who isn’t relying on a broker to do all of the hard work for you. You may find that it takes quite a bit of time to figure out what all of the different terms and phrases mean in the trading world. For instance, you might have heard of after hours and premarket trading and wondered what on earth they involved. 

The good news is that premarket trading is pretty easy to understand once you know the basics. Ultimately, the stock markets operate at 9:30 am almost every day (except holidays) and close at 4 pm. If you want to trade before the opening bell rings, then you’ll need to find a broker that offers premarket trading. This kind of trading allows you to buy and sell stocks using electronic communication networks. 

When to get started with premarket trading

With many brokerages, it’s possible to start trading on the stock market as early as 4am, hours before the official opening bell rings. However, the exact time you can start trading will depend on the broker you choose. These days, many brokers will offer premarket and afterhours sessions as an option for people who can afford them. However, this kind of trading isn’t always recommended – particularly for beginners. 

There’s very little liquidity in the premarket, which means that you’ll have a much harder time finding someone to buy your shares or discovering opportunities to sell. Additionally, the costs associated with buying and selling in the premarket aren’t always indicative of the rest of the marketplace – which can be very confusing. 

Usually, the main reason to consider trading in this environment is that you’ve got some important news that you want to take advantage of, or perhaps you are in the business of pattern day trading. For instance, if you know something is about to change in a business that you have a lot of shares in tomorrow, then you might want to get ahead of the market reaction to the news that’s about to break. Everything from an earnings report with shocking information, to a court ruling can make it more likely that you’ll want to trade in the after-hours or premarket sessions.

Trading before the bell rings

Buying and selling shares before the bell rings is often a better option compared to simply buying or selling securities in the after-hours market. That’s because there’s still a lot of time in which things can change between the moment when the afterhours space closes, and the opening bell chimes. On the other hand, when you’re trading in the premarket, you can continue working on your position until the market officially opens at 9:30 am.

Of course, just because the premarket is better than the after-hours space for trading, doesn’t mean that it’s foolproof. This space is a lot riskier than the standard market, which could mean that you end up losing a lot of cash.

WE SAID THIS: It’s important to consider your options carefully before you rely heavily on early morning trading.