Pre-market and post-market trading sessions
All traders know that the market is usually open from 9:30 AM until 4:00 PM, Monday to Friday. The forex market is the world’s most massive financial market. People trade billions and billions of stocks in the US forex market alone. Just imagine the traders and all the trading activity around the world. Due to this reason, stocks become liquid and efficient.
Did you know that the market is also open before these times? We can call these times pre-market and post-market sessions. The stock market allows traders even before and after trading hours. Moreover, traders can trade from 4:00 AM to 9:30 AM in the pre-market session and 4:00 in the afternoon to 9:00 PM in the post-market session. We have mentioned that billions and billions of stocks are traded in one trading day. So, if we trade beyond regular hours, we can only see a portion of the volume during a typical trading day. Hence, a trader might encounter problems but being profitable is not impossible with a lot of hard work and research.
Fundamental factors and trading outside of regular hours
There are different kinds of market analyses in trading. For instance, we have the fundamental analysis that further concentrates on economic news, press releases, and more. Let us talk about how they are relevant to trading outside regular trading hours.
- Company announcements. Companies, especially the major ones, have various strategies and timings for their reports and notifications. Most of them refrain from spreading news during regular trading hours because it may cause problems like wrong interpretations about their stocks’ value. For instance, a massive decline in a company’s earnings in their final quarter was worse than the analysts’ expectations will cause a significant loss for them — hence, misinterpretations. So, a person who trades after the regular trading hours can have more access to the value changes of a company’s stocks since they move even when the market is not open. Trading during these hours means having a more accurate reaction regarding the company stocks and announcements. When the market opens, the share prices already reflected the change. In a sense, the stock price is a better reflection of the actual value. Chances are, you’ve realized this too late already.
- Economic news and indicators. Usually, economic indicators come around 8:30 AM, which is an hour before the New York session. The way the market reacts to this becomes the basis of the trading day because it massively moves the price.
Should I trade during pre-market and post-market hours?
Retailers did not have access to these hours until the internet and technology came. It was only a benefit for institutional investors before. So, now that we can, should we trade during these hours? Trading before or after regular hours means the market is less liquid. Hence, if you want to sell, it might be more challenging because there are fewer traders. Also, if the announcement turned out worse than your expectation, you will have a more challenging time selling.
Let us add to the list to consider before trading during these hours is the bid-ask spread. The spread will most likely be wider, and you might have no choice but to accept a price that does not reflect a fair value since fewer traders can’t agree on a reasonable price. Also, bear in mind that the volume will usually be lower, and the price volatility is high. Chances are, it’s harder to know when to buy or sell. A single massive trade from one firm can move the stock price.
So, we repeat that it is not impossible to become profitable when trading before and after the regular hours. However, hard work and research are needed. If you are interested, most traders can give you access to do so. It may be limited or full access. SEC advises all interested people to read all disclosures well before going through with them.