Are you anxious to try your hand at pre- and post-market stock trading sessions? Before you jump in, there are a few basic facts that you should take into consideration. That’s why we’ve put together this beginner’s stock market guide to trading before and after regular hours.
What Are the Pre- and Post-Market Hours?
First of all, we need to establish the hours of the regular trading session. Both the New York Stock Exchange and Nasdaq operate primarily from 9:30 AM to 4:00 PM Eastern Standard Time (EST).
Pre-market trading is from 4:00 AM to 9:30 AM EST. The after-hours stock market is open from 4:00 PM to 8:00 PM EST.
Why Don’t I Hear More About Trading in the Pre and Post Market Sessions?
Not that long ago, individual investors weren’t allowed to trade before and after regular market hours. That privilege was available only to institutional investors such as endowment funds, insurance companies, pension funds, commercial banks, and hedge funds.
At that time, the computerized method for trading was rather exotic and, of course, expensive. Like so much other technology today, computer trading has become a bit more democratized.
Nowadays, individuals can play the same game as the big guys. However, investing during off-hours requires an extra level of understanding of how the market works as well as additional caution.
Therefore, most trading websites for newcomers seldom make mention of the opportunity. And if they do bring up the subject of trading outside regular hours, they mention it only in passing because large-scale investors still dominate off-hours trading sessions.
What Are the Pros of Trading in the Pre and Post Market Sessions?
Every trader is searching for that competitive edge that will allow him to make a profit while everyone else is sleeping. In the case of the pre-market, that can be more than just a metaphor. Some stock market traders are indeed pocketing gains while the rest of us are rolling over in bed.
But how are some traders taking advantage of these off-hours? In many cases, they’re using newly-released economic information to gauge the likely direction that the market will move. If they predict correctly, they could make a profit even before the regular session begins.
Once the day’s normal session starts, these traders already know what position they’re going to take. If other players agree with their estimation of the effect of the economic information released that morning, those traders could stand to make yet more profit.
Similarly, breaking news could make it enticing to trade in the post-market session. For example, an event of national or international significance could occur near or after the closing bell. If you can accurately gauge how the market will react to that news, you could put yourself in a winning position that evening.
What Are the Cons of Trading in the Pre and Post Market Sessions?
No one predicts everything correctly. Naturally, you can expect to be wrong sometimes concerning the impact that the news will have on the market. There could be subtle and sophisticated financial reasons why the news doesn’t mean as much as you think it does.
Institutional investors with many years of experience will be able to determine the true weight of the news while beginning investors may not have enough knowledge to wade through the flood of information. In the end, you could be on the wrong side of the market move when the next opening bell rings. If that happens, instead of profit, you’re facing perhaps, some massive hard-knock losses.
Another significant concern about trading in the pre- and post-market sessions is liquidity or, more accurately, illiquidity. During the regular trading sessions, you will typically have very little trouble either acquiring or unloading a stock.
Things are different in the off-hours. Because there are fewer traders active at those times, you’ll have a smaller group from which to purchase or to whom to sell.
You might compare the situation to wanting to buy a specific make and model of automobile. Are you more likely to find a seller of that particular vehicle on eBay or your local listing for Craigslist?
Conversely, if you were trying to sell your car, are you more likely to get an offer from at least one of the millions of people on eBay or one of the thousands, or maybe even just hundreds of people reading your local version of Craigslist?
How Do You Execute a Trade During the Pre and Post Market Sessions?
Trades are executed through brokers who choose to participate in off-hours trading. You’ll have to check with your trader to verify that its pre- and post-market trading is available to individual investors and not just the big institutions.
You’ll also want to find out the specific hours that your broker allows trading. Not all brokers offer trading for the same length of time in the morning or evening. If there’s a particular hour of the day during which you would especially love to trade, you may have to switch brokers to do so.
Restrictions of Pre and Post Market Trading
Your order has to be a limit order which locks your purchase or sale at a set price. However, there’s no guarantee that a limit order will execute. There may not be enough action to move the stock in the direction to meet your limit and trigger the purchase or sale.
The likelihood of being stuck with a limit order that is not fulfilled increases due to another restriction: pre- and post-market orders expire at the start of the next regular day’s session. Your actions before the opening bell or after the closing bell don’t carry over into normal trading hours.
You've Read Our Stock Market Guide: Are You Ready to Trade?
We would never tell you what to do. However, we would warn you to proceed with caution. After-hours trading may be open to individuals, but, as our stock market guide mentions, it’s still very much the domain of the big investors.
Therefore, it would be wise to wait until you thoroughly understand economic indicators and how they move markets, so you’ll see why institutional investors are making particular trades. Then, if you want to join them and buy and sell as they do, at least you’ll be basing your decisions on facts rather than feelings.
Fortunately, we make it easy to grow your knowledge. For more stock market tips keep reading additional helpful articles here on our blog.