Short term in stock terms, premarket trade is stock trading which takes place either prior to the opening of the stock market, i.e. before the market opening or on after the market opening. The trader enters the stock via a seller and purchases from the buyer who has agreed to purchase the securities. These transactions are usually done a few hours before the market opens.
There are certain rules which must be followed when you opt for premarket trading. Since most transactions take place very quickly, it is important that you can be back at your office by the time the opening bell rings. If you are away from your desk for more than a few hours, you should make arrangements for someone to receive your emails and messages so that you do not miss out on any deals that may become available. Since premarket movers take place during the day, it is important that you have a working computer with you to enable you to respond to any messages or emails from these trades promptly.
Premarket movers also provide information regarding earnings releases, share price movements and general news that affect the financial sector. This helps the investors to better understand the trends and the direction of the share prices. It is therefore very important that the individuals, who decide to go ahead with premarket trade, ensure that they are well-informed of the happenings in the financial arena so that they can make informed decisions accordingly. For this, they should always monitor the major business news daily so that they know what is taking place on a day-to-day basis.
There are certain rules that you need to follow when you opt for premarket online trading. One of the first things that you need to ensure is that you inform your broker about your intentions and your location. In most cases, brokers will require you to maintain a minimum balance above 0.00% in your bank accounts. This will ensure that you do not exceed the maximum limit that is set for an individual in the afterhours trading market. If your broker requests you to maintain a higher balance, then you should be aware of the risks involved as it could lead to the cancellation of your standard trading account by your broker without prior notice.
Another thing that you need to know is that you cannot place market orders during the premarket session itself. This is because of the fact that the opening and closing prices are done before the opening and closing session of the actual stock market trading. Since the market is not open during the premarket session itself, there is no way for you to place your order during the actual stock market trade. The reason why most traders refrain from placing their premarket orders is the risk of losing large sums of money. The biggest risk with premarket orders is that they are not subject to the same level of over or under orders. You cannot place a normal stop-loss order in case the market rises or falls before your stop-loss amount is reached.
Another disadvantage of placing your premarket trade in the after Hours Market is that the prices do not change very fast. This is unlike the regular trading sessions in the after hours, where the market price has a tendency to fluctuate according to the present market conditions. With the regular trading sessions, the prices of the underlying securities do change rapidly based on prevailing market conditions. These fluctuations happen due to the occurrence of central bank intervention, adverse economic news, sudden price spikes caused by extreme weather conditions etc. When you place your premarket trade in the after hours session, you are subjected to all these conditions and there is no room for any change.
You cannot use futures trading tools like Hedging nor can you use options like Forex Fishy to protect yourself in the premarket trading environment. To protect yourself in this environment, you need to open an exclusive account called a Scalper Trade Account which is open only to professional brokers. You can use your exclusive pre-market broker account when you want to place a trade. In order to gain maximum benefits from your trade, you should first make sure that the spread on the underlying securities you are dealing with is not wider than 1 pips in any given day. If the spread on the securities is wider than this, then you will have to pay brokerage commissions. These costs can easily wipe out the profits that you have made through pre-trades.
Moreover, you should know how much liquidity you have on hand before you make a trade. The higher level of liquidity you have on hand, the easier it is for you to predict the market trends. If there is minimal liquidity on hand, the opposite trend to your prediction can take place thus causing your stock price to crash.