4. Premarket Trading Tips

Risks Involved

Risks inherent in the premarket:

  • Illiquidity, very light volume
  • Limit orders only, can’t bail with market order
  • Potential for extreme volatility
  • Wider spreads

Investors with online trading accounts can buy stocks in premarket hours if their brokerage firms provide this option.

But even though premarket trading allows investors to trade shares as early as 4:00 a.m. ET, there are less sellers and buyers during the session.

Most investors are usually sound asleep, so even small orders can distort prices.

Sellers and buyers of most stocks can trade speedily with each other during regular trading sessions, unlike in premarket hours when investors experience less trading activity thus making it challenging to execute some of their orders.

Less trading volume might also mean bigger spreads between the ask and bid prices. Therefore, investors could find it more grueling to get as favorable share prices as they could have during normal trading sessions.

Limited trading activity also means that investors may find greater price fluctuations than they would have seen during regular hours of trading.

In spite of the risks associated with premarket trading, this type of trading is beginning to attract keen interest from investors.

Premarket trading allows investors to respond fast to major events and news, such as political turmoil overseas or sudden corporate misfortunes that are affecting a stock, even before the market opens.

See what the hottest stocks are for the trading day by visiting our premarket gap scanner and don’t forget to bookmark it!

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