Pre-market trading allows investors to trade shares and securities before official market opening hours. It was originally for institutions but has become popular with individual investors due to technology advancements and access to real-time data. Limit orders are required to ensure fair prices.
The term pre-market trading refers to the practice of trading shares, securities, and other financial instruments in markets before they are officially opened. Most national and international stock exchanges are open Monday through Friday, for a specified number of trading hours each day. Securities and securities transactions by individual investors typically take place during these times; however, pre-market trading has gradually increased in popularity since the 1980s. As a result, many investors now look for opportunities to complete security transactions while the markets are closed. Additionally, pre-market trading allows investors to react with buy or sell decisions based on up-to-the-minute events.
The types of shares and securities that can be bought and sold during pre-trade hours are not limited to specific classes of financial instruments. Shares that would normally be available during regular trading hours may also be traded during pre-market periods; however, because the financial markets are closed when pre-market trades are placed, it is technically considered an order. Investors and brokers can indicate the highest and lowest price they will accept for the purchase or sale of a share. This is called a limit order and is a general requirement for pre-market trading.
Due to light volumes in pre-market trading, limit orders can help ensure that prices remain fair for regular and pre-market trading. In general, many stocks traded during pre-market periods are those of the companies that make the headlines. Many investors routinely look for opportunities to jump start the market based on news and earnings reports that may have been released after or before normal market hours.
Pre-market trading was not originally intended for individual investors. The concept was first applied to larger institutions as a way to transfer large blocks of operations in an orderly manner that would not disrupt the flow of regular operations. As new technology has allowed more investors to gain access to market data, the popularity of pre-market trading has continued to rise. Brokerage firms can now make real-time pre-trade trading numbers available to clients. This development, along with access to free websites offering similar services, has encouraged more individual investors to make decisions based on pre-market fluctuations and news events.
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