In around two minutes you will know what is Premarket Trading. You will get both professional definition and easy explanation. No intro, no outro, straight to the point.
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Pre-market Trading is trading activity, that happens before the markets are officially opened. Pre-market trading is the opposite to after hours trading. Watch my next video to learn what after hours trading means.
Usual market hours are from 9:30am EST to 4pm EST. And pre-market trading hours can vary. Most start around 8am, while some can start as early as 4am EST.
Not all brokerages offer the ability to participate in pre-market trading. So, make sure to check with your broker personally. But such brokers as Charles Schwab, TD Ameritrade, and Fidelity they do offer pre-market trading. This information is relevant as of November 2020.
Pre-market trading has its own benefits and disadvantages. The most obvious advantage is that pre-market traders are able to react to any stock market news immediately. I would say, that this reason is responsible for more than 90% of pre market trades.
But the biggest disadvantage of pre-market trading is very low liquidity. Liquidity in simple terms is how easy it is to convert one asset to another. In our case it is how easy to buy or sell shares.
If you buying or selling stocks during normal market hours, the transaction might take several seconds to be executed because of larger volumes of trades happening.
While buying or selling the same stock during pre-market hours might take substantially longer. And the reason for this is simply because there are far fewer trades happening at that time.
So, if you want to buy or sell any particular stocks during pre-market hours, the final price you’ll end up paying or receiving might be very different from what you’ve been expecting.
Unless, of course, you use limit orders.
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