- The biggest stock moves can occur in pre-market trading. A common example of a pre-market jump or plunge is when a company releases an earnings report before the opening bell as institutional traders react to the information.
- Pre-market opens at 7 a.m. Eastern Time and is a reaction to what has happened with the global market overnight as well as closing prices the previous session. Pre-market concludes at 9:30 am Eastern Time with the opening bell of the regular session.
- Pre-market trading is only done by traders who meet Federal Reserve requirements and have access to trading software platforms. The trader needs a margin account with access to Level 2 quotes and ECNs.
- Trading professionals such as CNBC's Jim Cramer have warned to only use limit orders during pre-market. Market orders can execute at undesired prices whereas limit orders only execute at the trader's chosen price.
- Since the biggest moves can be made in pre-market, some people may think that means pre-market is the best time to trade. Actually, the result of this limited trading period is often lack of price movement, as many stocks are not affected by pre-market.
- Pre-market volatility can be uncomfortable. Broker-dealers are not required to trade stocks in pre-market, which explains the low volume. This illiquidity, or inability for the market to match buyers and sellers, can lock a trader into an undesired position.
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