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 4:00am ET (9:00am GMT), but most trading tends to occur between 8:00am and 9:30am ET (between 1:00pm and 2:30pm GMT).

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

• DAX: 8:00am – 9:00am Germany time (7:00am – 8:00am UK time)
• ASX: 7:00am – 10:00am Sydney time (8:00pm – 11:00pm UK time in winter and 9:00pm – midnight in summer)
• Shanghai Stock Exchange: 9:15am – 9:25am Shanghai time (1:15am – 01:25am UK time in winter and 02.15am – 02:25am in summer)
• Hang Seng: 5:15pm – 3:00am the next day Hong Kong time (9:15am – 8:00pm UK time in winter and 10:15am – 9:00pm in summer)

You can learn more about how to trade with us during pre-market hours using our after-hours trading information.

Which assets can I trade in the pre-market?

It is possible to trade listed stocks and indices through pre-market trading. Stocks are a popular pre-market asset to trade because they 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 invest in a group of major shares. We offer 24/7 trading on indices, a longer time frame than both stock markets and their underlying futures are open.

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

There is also weekend trading available for both stocks and other assets that only trade between Monday and Friday.

Benefits of pre-market trading

Pre-market trading is most 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, investors should remember that due to the small volume of trades, pre-market price moves may not be a precursor to similar moves when the markets open.

Chance to compete with other traders

Traders who have 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 correctly predicts that a company's earnings miss will affect its share price, they might make moves to take advantage of this in early trading, anticipating further contraction on market open. This only works if the pre-market hasn't fully priced in the contraction of the news, and the trader's bet on the share price direction is accurate.

Convenience

Traders also like trading during pre-market hours because it is simply more convenient. Most amateur 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 make an 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 eight risks to be aware of in pre-market trading.

Here are some of the most prominent risks:

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 when spread betting. That means you may struggle to get as favourable terms as you would during normal hours, and you may struggle to get any trade executed.

Non-execution of limit orders

Most electronic 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 pay more or sell for less on your order. Because of that 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, leaving a pre-market trader out of pocket. These factors also increase the volatility of a share price, particularly based on overnight news.

Competition with professional traders

While you may get ahead of some of the competition through pre-market trading, you will be faced with new competition that may be difficult to overcome. Pre-market trading attracts bigger institutional investors, which may have access to more information than the typical retail trader.

Computer delays

Because most pre-market trading is done on an electronic trading system, it is prone to systematic computer delays that might affect the execution, cancellation or changing of your trades.

How to trade on the pre-market

You can trade or invest with us during pre-market hours on our platform as follows:

1. Do your research about the different markets
2. Decide whether you prefer to trade or invest via share dealing, spread betting or CFDs
3. Open a trading account or practise with a free demo account
4. Select your market, exercise price and expiration date
5. Choose your position size, place the trade and manage your risk
6. Trade using share dealing, spread bets or CFDs

Share dealing is the most popular way to trade with us during pre-market hours, giving traders a hands-on approach to picking their preferred stocks.

You can trade on leverage using spread bets and CFDs and speculate on rising or falling stock prices without buying physical shares. You are also able to take a position on shares over the short or medium term and go long or short on the shares you're interested in.

Share dealing allows you to enjoy tax benefits related to stamp duty and capital gains.* You're also able to open a position by putting down a fraction of the full value of the trade.

Remember, trading with spread betting or CFDs comes with added risk attached to leverage. Your position will be opened at a fraction of the value of the total position size – meaning you can gain or lose money much faster than you might expect. When share dealing, you buy and own the shares, so you aren't exposed to this risk.

Trading via spread betting and CFDs

Spread betting has certain advantages. You can choose a certain amount per point movement using spread bets. This gives you more control over your position size and currency exposure. Spread bets are popular with traders because all your profits are tax free, and there is no stamp duty or commission payable.*

All spread bets are leveraged, which means you only pay an initial deposit to open the position. However, overall profits are based on the full position size, not your premium size.

Note that when investing or trading shares, your risk is limited to the margin you paid to open the position. If you sell options, your risk is potentially unlimited, so you need to carefully manage your risk.

You can also trade pre-market through CFDs – short for 'contract for difference'. Like spread bets, CFDs are leveraged products. This means you don't own the underlying asset, but you're betting on its price movement. Your currency exposure and initial margin will vary according to the contract of the asset chosen.

You are able to use our after-hours platform to trade pre-market and post-market. We are the only global provider that offers trading on weekends for the GBP/USD currency pair and global indices.

* Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.

Pre-market trading summed up

• Pre-market trading is the process of trading assets before the markets officially open
• You can typically trade shares pre-market, but weekend trading is available on IG for currency pairs and commodities
• Pre-market trading allows traders to react first to overnight news that might affect share prices, and it helps them get ahead of the competition
• Pre-market trading suffers from limited liquidity that affects bid-ask spreads and might result in your trade not being executed
• Use our platform to trade shares pre-market through share dealing, spread bets or CFDs