Once upon a time, stocks could only be traded during the standard Wall Street hours of 9:30 a.m. to 4 p.m. But over the years, the Nasdaq expanded its pre-market operations, thus enabling investors to begin trading at 4 a.m. Eastern time. Pre-market trading hours are from 4 a.m. to 9:30 a.m. After-hours trading is from 4 p.m. to 8 p.m.
The advent of electronic communication networks (ECNs), which match potential buyers and sellers without using a traditional stock exchange, greatly allowed investors to trade stocks outside of normal market hours.
And as Nasdaq’s pre-market incrementally grew over time, investors across different time zones enjoyed the ability to trade stocks with greater convenience than ever before. During pre-market hours, investors can swiftly react to news items such as corporate earnings reports and government economic data announcements.
As such, during pre-market trading, share prices are strongly influenced by political events and other external factors, rather than supply and demand forces.
Key Takeaways
- The Nasdaq and other major stock exchanges have steadily augmented their trading hours to provide investors with more time to buy and sell securities.
- Nasdaq's pre-market operations let investors start trading at 4 a.m. Eastern time.
- Electronic communication networks (ECNs) enable investors to trade stocks during aftermarket hours between 4:00 p.m. to 8:00 p.m.
- Expanded trading hours let investors instantly react to corporate news and political events.
- Drawbacks to pre-market trading include higher transaction fees, depressed liquidity, and pricing uncertainties.
Disadvantages of Pre-Market Trading
Pre-market trading can negatively affect prices and volume. This is mainly because there are fewer stock market participants during pre-market hours, which depresses the liquidity of most listed securities. And with low liquidity comes greater volatility.
Spreads between bid and ask prices expand, often swinging widely within a single trading day. As another drawback, it can be difficult to get accurate quotes because even the best ECNs can register reporting delays.
In pre-market trading hours, individual investors often run at a disadvantage to their institutional investor counterparts because of differences in buying power. Let’s assume that the California State Teachers’ Retirement System seeks to purchase a giant block of stock before 9:30 a.m. Let’s further assume that the Oklahoma Public Employees Retirement System happens to have such a stock block to sell.
Under these circ*mstances, a small solo investor’s bid or ask price is likely to be politely ignored. Of course, even if that small investor’s trade went through, the pre-market transaction fee would likely be significantly higher than fees charged for the same trade during regular market hours.
Nasdaq’s pre-market is officially known as "extended-hours trading."
How Brokers Limit Pre-Market Trading
The institutions that codify Wall Street rules know individual investors may face certain struggles during pre-market hours. Consequently, online brokerages often restrict investors’ ability to fully exploit these trading windows.
Trading Hours
For example, Charles Schwab Corp. (SCHW) allows traders to place pre-market orders between 8:05 p.m. of the previous trading day and 9:25 a.m. ET, but the orders can only be executed between 7:00 a.m. and 9:25 a.m. ET. After-hours trading orders can be placed and executed between 4:05 p.m. and 8:00 p.m. ET.
Size and Types of Orders
During pre-market hours, brokerage houses only facilitate limit orders, where securities are bought and sold at specific, pre-declared prices. Contrarily, investors looking to place a market order, where an issue sells at the going market price, may only do so during standard hours.
Also, the number of shares per order is usually restricted. For example, Schwab won’t allow investors to trade more than 25,000 shares.
When Does the Nasdaq Pre-Market Open?
Nasdaq's pre-market operations begin trading at 4 a.m. Eastern time, while the traditional stock market time runs from 9:30 a.m. to 4 p.m. Eastern time.
How to Trade the Nasdaq Pre-Market Open?
Investors can trade the Nasdaq pre-market using their current stockbroker; however, some brokers may have their own pre-market trading hours. For example, Charles Schwab allows pre-market orders after 8:05 p.m. of the previous trading day, but those orders will only be filled between 7:00 a.m. and 9:25 a.m. ET.
When Are the Times for Nasdaq's After-Hours Trading?
Nasdaq's after-hours trading runs from 4 p.m. to 8 p.m.
The Bottom Line
Individual investors should weigh the pros and cons of pre-market trading. Although there can be overwhelming risks, there are also potential windfalls for those with the fortitude to take the plunge. Please consult a financial advisor or investment professional to determine if pre-market or extended-hour trading is appropriate for your investment goals and risk tolerance.
FAQs
Nasdaq's pre-market operations let investors start trading at 4 a.m. Eastern time. Electronic communication networks (ECNs) enable investors to trade stocks during aftermarket hours between 4:00 p.m. to 8:00 p.m. Expanded trading hours let investors instantly react to corporate news and political events.
How does the Nasdaq pre-market work? ›
The Pre-Market Indicator is calculated based on last sale of Nasdaq-100 securities during pre-market trading, 8:15 to 9:30 a.m. ET. And if a Nasdaq-100 security does not trade in the pre-market, the calculation uses last sale from the previous day's 4 p.m. closing price.
Is premarket accurate? ›
Uncertain prices and high volatility
Because of the limited number of trades and low volume, pre-market moves are by no means an indicator of a share price's movement during normal trading hours. An asset's price could reverse or stall when the markets open, which could leave a pre-market trader out of pocket.
What does premarket tell you? ›
The often-volatile pre-market trading session is widely followed to gauge the market outlook ahead of the regular open. Price volatility is driven by forces outside the regular trading session, and knowing how to trade stocks and futures during this period is an opportunity for investors looking to profit.
Does premarket trading predict? ›
Extended-hours trading in stocks takes place on electronic markets known as ECNs before the financial markets open for the day, as well as after they close. This activity can help investors predict the open market direction.
What is the 10 minute rule for Nasdaq? ›
If the public announcement is made during Nasdaq market hours, the Company must notify MarketWatch at least ten minutes prior to the announcement.
How do premarket orders work? ›
Before the market opens, traders can log into their brokerage accounts and look for opportunities to get ahead of the market, especially if reports are being released during the trading day. Then, traders can place orders through their brokers.
Can you trust the pre-market? ›
However, with very low levels of liquidity during pre-market and after-market hours, there is no guarantee that a certain trade will be executed. the risk is that your order may be partially executed or not executed at all. Volatility: Changes in price of a security during trading hours is known as volatility.
How to read pre-market data? ›
Focus on earnings reports, economic data releases, geopolitical developments, or any other news that could impact the market. Scan for Stocks with High Volume and Volatility: Use your market scanner, such as TrendSpider's Market Scanner, to identify stocks with high pre-market trading volume and volatility.
What are the disadvantages of pre-market trading? ›
Risks of pre-market trading
- Lack of liquidity. The pre-market session is much less liquid than the regular session, for most securities much of the time. ...
- Inability to execute a trade. You can put an order in, but that doesn't mean it will fill. ...
- Potential to misjudge sentiment.
Demand is generated by nimble retail traders rushing to buy the stock when markets first open. Stock prices spike because there aren't enough large brokerages ready and willing to sell the in-demand stock based on limited information early in the day.
Does premarket affect opening prices? ›
Understanding premarket trading
Such news can have a meaningful impact on how the market values a stock. It's why you'll often see a stock's share price open at a much different price than its previous close when it releases earnings.
Who buys in premarket? ›
If you're wondering who can take advantage of premarket trading, it's really just about anyone. While institutional and high-net-worth individual investors most commonly trade before the market opens, technically anyone can do it.
What is the most accurate stock predictor? ›
1. AltIndex – Overall Most Accurate Stock Predictor with Claimed 72% Win Rate. From our research, AltIndex is the most accurate stock predictor to consider today. Unlike other predictor services, AltIndex doesn't rely on manual research or analysis.
What is the pre-market strategy? ›
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.
How to take advantage of pre-market? ›
When you trade during pre-market, post-market or weekend sessions, you can:
- React to breaking news and company earnings reports as they happen.
- Open, edit or close a position outside of the main market session.
- Hedge your exposure if breaking news is likely to affect an existing position.
Pre-market trading can be a good way to get into the market or out of it, particularly for widely followed stocks and funds. With pre-market trading, you can place trades before much of the market is ready to act. Despite this advantage, pre-market trading is not without some drawbacks.
What is the rule of 40 Nasdaq? ›
The Rule of 40 states that, at scale, the combined value of revenue growth rate and profit margin should exceed 40% for healthy SaaS companies. The Rule of 40 – popularized by Brad Feld – states that an SaaS company's revenue growth rate plus profit margin should be equal to or exceed 40%.
What time does premarket open for Nasdaq? ›
For Nasdaq, pre-market trading hours are 4:00 am to 9:30 am, Eastern Time Zone. After hours runs from 4:00 pm to 8:00 pm, Eastern Time Zone. Certain brokers have different pre-market and after hours trading times (for example, TD Ameritrade limits pre-market trading between 8:00 am and 9:15 am).
What happens in a pre-market session? ›
What is the Pre-Open Market Session? Pre-Open market session is utilised to arrive at the ideal opening price of a stock for the current trading session. The duration of the pre-open market session is from 9:00 a.m. to 9:15 a.m. which is 15 minutes before the trading session starts on: NSE and BSE.
