Specifics of pre-market and after-hours trading: how to use extended hours

The pre-market and after-hours periods in the stock market provide investors with additional opportunities to make trades and profit. But trading during extended hours also requires certain skills and experience, which will help to adapt the strategy and react correctly to market changes.

 

In this article we analyze in detail the features of the pre-market and after-hours periods that are important for a trader to know before trading in the extended hours.

 

Pre-market and after-hours opportunities

 

The pre-market and after-hours periods are extended hours of trading on the stock market before and after the main trading session. You can read about the key differences between these periods of the trading day in the article.

 

The duration of the pre-market and after-hours is set individually by each stock exchange in accordance with its regulations. The start and end times are also different and depend on the geographical location of the exchange.

 

Trading during extended hours requires careful work with information: market and individual company news, reports, insider information, etc. A trader who plans to trade during the pre-market and after-hours periods must be skilled in fundamental and technical analysis, as stock prices can be influenced by several indicators at the same time.

 

It is possible to make a profit during the pre-market and after-hours due to large price gaps on the chart. Gaps are formed due to the difference between the closing and opening prices, which appears as a result of changes in supply and demand for the asset. The opening price at the beginning of the main trading session may vary by 5-25% from the closing price of the previous trading day.

 

 

Traders should take into account that trading during extended hours is not available on all brokerage platforms. The list of stocks that can be traded during the pre-market and after-hours may also be limited individually by each broker.

 

What affects trading during extended hours?

 

The main purpose of trading during the pre-market and after-hours is to anticipate the market's reaction to certain news. These include quarterly and annual reports, merger announcements and economic indicators that are published before the main trading session. Traders can learn such news from their broker's newsletters, economic resources, and insider information feeds.

 

Large orders from institutional investors, such as a large corporation or government, can strongly influence the prices of specific stocks. This is because institutionalists may have direct access to the issuing companies, know about their real economic situation and insider news. Prior access to such information allows institutional investors to make trades before the rest of investors know about it.

 

All these factors form the features of trading during extended hours, which are important for traders to consider when creating a trading strategy.

 

 

- Price spikes triggered by large orders can both significantly increase the profits of private investors and lead to large financial losses.

 

- High risks of trading during extended hours affect the number of active traders, due to which the pre-market and after-hours periods are characterized by low liquidity of assets.

 

- The opening price is formed on the basis of analytics of orders placed during the pre-market period. Special algorithms and formulas calculate the volume of orders, minimum and maximum buy and sell prices, after which the market price of the asset is set at the moment of the trading session beginning.

 

- All placed orders are valid for one trading day. If a limit order placed during the pre-market period is not executed, it is transferred to the main trading session. If the order is not executed neither during the trading session nor during the after-hours period, it is automatically canceled.

 

Summary

 

Pre-market and after-hours trading provides an opportunity to make money in the stock market for traders who can analyze news and react quickly to it. This type of trading involves high risk, low liquidity and high volatility, which may not suit every trader.

 

The extended trading hours allow you to find the right points for entering and exiting trades and place them with the most favorable price. It is important to remember that the forecast may be wrong and insider information unreliable, which will eventually lead to losses. Therefore, it is important for traders who trade during extended hours to consider their risk tolerance when creating trading strategies.