What is Pre-Market Stock Trading?
Pre-market stock trading is the trading that occurs before the stock market opens at its regular 9:30am ET hour. Pre-market trading enables stock investors to react more quickly to news that happens when the market is closed. Before the advent of online trading and Electronic Communications Networks (ECNs), pre-market trading was not available to retail stock investors.
The Use of Limit Orders in Pre-Market Trading
A limit order is an order a stock investor uses to buy or sell a stock at a specified price or better. A buy limit order, for example, can be executed at the specified limit price or lower. A sell limit order can be executed only at the limit price or higher. Given the parameters they put in place, limit orders are not always executed but they do provide investors with a level of control of their stock order execution prices. Because pre-market stock trading is often characterized by larger bid/ask spreads (due to the lighter trading volume) a limit order can help ensure the investor gets the price they are seeking.
What are the Risks Associated with Pre-Market Trading?
While all stock market trading involves risk, the Securities Exchange Commission (SEC) lists the following risks for after-hours and pre-market trading:
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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.
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