Getting ahead of the curve often seems like a good idea – particularly in the stock market, where money is the prime focus.
The faster you can sell an asset that’s not going to make you any money, the easier it is to reduce your losses.
Similarly, if you know before anyone else that a stock is going to increase in price, buying plenty of that stock before the rest of the market can react is a great way to boost your chances of making some serious profits.
That’s the idea behind premarket stock trading.
While most people wait until the NYSE and other stock markets open officially to start buying and selling assets, people in the premarket may begin changing their positions before the exchange formally opens at 9:30 EST.
This can sometimes lead to better results for these investors overall. However, there are risks to consider when it comes to trading ahead of the bell too.
The Risks of Trading Ahead of the Stock Exchange
Unless there’s a significant piece of news that indicates the price of a stock is going to change drastically by the time an exchange opens again the next morning, there’s not a lot of benefit to trading during the early hours of the market.
Premarket trading is risky because there’s very little liquidity in the market. There aren’t a lot of people available for you to sell to or buy from, so your ability to move your assets will be limited.
Additionally, prices for stocks in premarket trades can also be a lot more volatile.
A lack of volume means that prices often rise and fall more rapidly than usual. This means that in your attempt to gain money from making a quick decision, you end up losing your hard-earned cash instead.
Even worse, the prices of the stocks that you’re dealing with during premarket hours might not reflect share prices during regular hours. The trends in the premarket can be deceptive. Even if your prices appear to be rising before the opening bell, they could drop significantly when the exchange opens.
Read also: 5 Ways to Improve Your Success Trading Rate
Should You Be Trading in the Premarket?
There’s no one-size-fits-all strategy when it comes to managing stocks and assets. When you start trading in the stock market, you’ll discover that you begin to develop a strategy that works for you, based on what you know about the companies and securities that you’re investing in.
If you’re a beginner in the trading world, it’s often best to avoid complicated environments like the premarket space and the after-hours stock exchange.
However, it’s worth noting that the premarket is usually less risky than trading after-hours for the most part. That’s because the premarket trades you make will carry over instantly into the regular opening hours for the exchange throughout the day.
On the other hand, you can only trade in the after-hours exchange for a couple of hours, which means that there’s still a chance that your situation could change drastically by the time that the opening bell rings again.