Despite its formal business hours, the stock market never sleeps. Those who cannot trade during normal market hours may benefit by trading during extended hours.
Experienced traders can also use the news to fuel their trades by making targeted purchases shortly before the market starts.
What Is Premarket Trading?
Trading that occurs before the usual market trading hours begins is known as premarket or pre-open market trading. Premarket stock trading takes place between the hours of 8:00 a.m. and 9:30 a.m.
Compared to regular trading hours, the volumes traded during premarket meetings are often substantially lower.
Financial experts believe it is difficult to make trades because few active users are before market hours, such as 9:30 a.m.
The pre-open meeting was created by the Public Securities Exchange to reduce the unpredictability of securities during the market opening each day.
On the NSE, the premarket meeting takes place between 9:00 and 9:15 a.m.
How Does Premarket Trading Work?
If you’re wondering who can benefit from premarket trading, the answer is almost anyone.
While professional and high-net-worth individuals are the most likely to trade before the market starts, anyone can technically do so.
When regular trading begins, some investors watch premarket trading to see how far the market and individual securities are headed.
Changes in pricing and trading volumes often presage market occurrences later in the day.
Traders also use premarket trading to predict market response to breaking news. Markets and individual securities can be affected by international events, political instability, and other factors.
For example, a company may make an earnings statement after the market closes.
A premarket trader may try to purchase or sell before the retail market has a chance to respond to the news.
Can You Buy Options In Premarket Trading Session?
Option trades are not permitted during the premarket session. In the premarket session, only equities cash can be transacted.
Only during regular trading hours can options be bought or sold. However, you place your orders after the market closes for the next trading day using the AMO (After Market Order) feature brokers provide.
In most cases, only listed stocks can be traded during the premarket session. However, not all stocks are created equal.
Equities with a restricted float or that are not widely held and small-cap stocks may not have enough volume to make premarket trading practicable.
However, most stocks can be traded before or after certain times. The lack of similar premarket and after-hours trading for many stock options is perplexing for some investors.
The Pros and Cons of Premarket Trading
The distinction between premarket and regular session trading is more than just a matter of scheduling. Here are advantages and disadvantages of trading outside of regular trading hours to consider.
- Trading at more convenient times
- Respond to breaking news stories first thing in the morning.
- Liquidity issues
- There is no compulsion to accept the lowest pricing.
- Professional competition is fierce
Trading Tips For Premarket Sessions
Before attempting to place your first premarket order, it is critical to observe premarket trading for some time to have a thorough understanding of the process and to ensure that you are familiar with the following rules:
- Only limit orders are permitted.
- Orders are valid for the duration of that session and do not carry over to the next trading session.
- Typically, premarket periods are substantially less liquid.
- Brokers can impose their premarket trading regulations, so double-check with them.
Frequently Asked Questions
Why Is It Necessary to Have Extended Trading Hours?
When the markets are closed, investors can react to news and happenings. It is also a simple option to trade for those who cannot purchase and sell assets during regular trading hours.
Is it possible to buy and sell before the market opens?
Although the stock market technically functions during business hours, you can still trade before the market opens.
Is it true that premarket trading has an impact on price?
The pricing of equities traded in the premarket may differ dramatically from those traded during regular business hours.
Amit Gupta is the creator of FreeDematAccount.in, a website that specializes in Demat accounts and provides assistance to all its users in navigating through complicated decisions. After completing his high school certification, Amit spent half a decade learning about Demat accounts from brokerages. Before forming FreeDematAccount.in, Amit worked for a Demat account brokerage.