What is pre-market trading and how does it work?

What is pre-market trading?

Pre-market trading is the process of trading assets before the markets open. Simply put, it's trading before the normal market hours begin. Traders use pre-market movements to gauge how markets might operate on full opening. However, they operate under more constraints and with much lower liquidity than during regular trading hours.

Trading pre-market is most common on the back of new information about an asset. This includes monetary policy, economic data and company earnings announcements. For example, companies may release financial results late at night, with the first time for traders to respond being the pre-market.

In the US, pre-market trading can begin as early as 4am ET (4pm GMT+8), but most trading tends to occur between 8am and 9.30am ET (between 8pm and 9.30pm GMT+8).

Pre-market times for other popular markets are listed below:

• DAX: 8:00am – 9:00am Germany time (2pm – 3pm GMT+8 in European summer and 1pm - 2pm GMT+8 in winter)
• ASX: 7am – 10am Sydney time (4am – 7am GMT+8)
• Shanghai Stock Exchange: 9.15am – 9.25am Shanghai time
• Hang Seng: 5.15pm – 3am the next day Hong Kong time

Learn more about out of hours trading with us.

Which assets can I trade in the pre-market?

You can take positions on listed stocks and indices through pre-market trading. Stocks are a popular pre-market asset to trade on because they typically have a high enough volume of trades to see a notable change in their share price. Small-cap stocks and those with a limited float generally lack the liquidity to generate a high-enough volume of trades.

Indices trading allows you to take a position on a group of major shares. We offer 24/7 trading on indices.

Other assets, like foreign exchange and commodities, don't have pre-market trading hours because they operate 24 hours a day on weekdays.

Weekend trading is also available with us for key indices and forex pairs that usually only trade between Monday and Friday.

Benefits of pre-market trading

Pre-market trading can be beneficial as a means of convenience and faster reaction, as the following points outline.

Reaction to overnight news

Sometimes, pre-market trading is the first time to react to news that might affect a stock's price. The overnight release of economic data like inflation, companies' financial results or geopolitical developments can all cause a share price to move pre-market. However, due to smaller trading volume,s pre-market price moves may not be a precursor to similar moves when the markets open.

Chance to compete with other traders

Traders with expertise in technical and fundamental analysis can use pre-market hours to get a jump on the competition, with other traders entering at normal hours. For example, if a trader thinks that a company's earnings miss will affect its share price, they might take a position in early trading,. If the market moves in the trader's favour, they'll make a profit - if it doesn't, they'll incur a loss.

Convenience

Traders also like trading during pre-market hours because it might be more convenient. Part-time and novice traders don't have the time or resources to commit to day trading during normal working hours because of other commitments. Pre-market trading can be the best option for these traders to potentially make an extra income. This also applies to people trading in other countries where pre-market hours might suit them better.

Risks of pre-market trading

There are several risks to pre-market trading, largely based on its differences to trading during regular hours. The Securities and Exchange Commission (SEC) lists risks to be aware of in pre-market trading.

These include:

Limited liquidity

Trading depends on having a ready number of other traders prepared to buy and sell your proposed offers. During pre-market hours, because there are fewer traders, it can be more difficult to execute some of these trades. Some stocks might not trade at all. These factors can make it more difficult for you to execute a trade.

Large bid-ask spreads

Because there is less trading volume and fewer traders, you may find it hard to align your bid price with an ask price during pre-market hours. That means you may struggle to get as favourable terms as you would during normal hours, making it more difficult for you to execute a trade.

Non-execution of limit orders

Many online trading systems only accept limit orders during pre-market trading to protect traders from volatility. Limit orders are only executed at a specified price and ensure you don't buy for more or sell for less on your order. Because of volatility, an asset's price might move away from your limit price. This makes pre-market limit orders susceptible to not being executed.

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. Volatility of a share price could also increase, particularly based on overnight news.

Competition with professional traders

While you may get ahead of some of the competition through pre-market trading, you can still be faced with new competition that may be difficult to overcome. Pre-market trading also attracts bigger institutional investors, who may have access to more information than retail traders.

Computer delays

Because most pre-market trading is done online, it's prone to systematic computer delays that might affect the execution, cancellation or changing of your trades.

How to trade on the pre-market

1. Create an account or log in
2. Learn more about pre-market trading
3. Open your CFD account and search for your opportunity
4. Select 'buy' to go long or 'sell' to go short
5. Set your position size and take steps to manage your risk
6. Open and monitor your position

With us, you’ll trade using contracts for difference (CFDs), taking a position on price movements – whether you think it’ll go up or down – rather than owning the shares outright. CFD trading is leveraged, so you could gain or lose money quickly – including the potential to lose more than the initial deposit paid to open the position as potential profits and losses are magnified to the full value of the trade. It's useful to keep in mind that past performance isn't a guarantee of future patterns.

With CFDs, your currency exposure and initial margin will vary according to the asset you choose to trade. To manage risk when trading CFDs, many traders set stop-loss orders to try prevent outsized losses.

New to investing or trading? Practise on a demo account to build your confidence.

Pre-market trading summed up

• Pre-market trading is the process of trading assets before the start of regular market hours
• You can typically trade on shares pre-market, but weekend trading is also available with us for indices and currency pairs
• Pre-market trading allows traders to react early on to overnight news that might affect share prices, potentially helping them get ahead of the competition
• Risks of pre-market trading include limited liquidity, large bid-ask spreads and non-execution of limit orders