3 Advantages of Trading US Stocks with Pre-Market Trading July 1, 2021
What is US Pre-Market trading?
US Pre-Market trading is the period of trading before a regular trading session starts.
POEMS now offers US Pre-Market trading between 07:00 and 09:30 US Eastern Standard Time (EST). Investors and traders usually watch Pre-Market trading activities to judge the strength and direction of the market ahead of the regular trading session. Changes in prices and trading volumes during these hours can foreshadow the rest of the day’s market movements.
You may also stay ahead of breaking news. For example, corporate news that is released before the market opens could cause a stock price to rise or fall significantly during pre-market trading.
Pre-Market traders attempt to trade the news before the market can react during a regular market session. Apart from earnings announcements and the release of economic data, events that might spur pre-market interest include geopolitical developments and analysts’ stock upgrades or downgrades.
Pre-Market trades are matched by electronic communication networks (ECNs) and require buyers and sellers to submit Limit Orders for their trades.
Due to its inherent limitations, Pre-Market trading presents both opportunities and risks. Investors need to weigh the pros and cons before entering into a Pre-Market trade.
Why use Pre-Market trading?
1. Opportunities for early reactions to news and announcements
Companies don’t usually make announcements during regular trading sessions but before the market opens and after the market closes. Many US economic indicators and data are also released at 8.30am, an hour before trading begins in New York.
Market reactions to such news and announcements can cause big swings in prices, producing significant price gaps with the last market close. Pre-Market trading allows you to place trades immediately to manage your positions without having to wait until the next day’s open.
This will allow investors with access to Pre-Market trading to fully gain or unwind positions affected by the news releases and/or announcements. While those without access to Pre-Market trading may not be able to leverage on such news fully as prices may have been priced in once market opens.
Chart A: Market opening gap
2. Gauge for breakouts or breakdowns during normal trading hours
The price range of a stock during Pre-Market trading can give traders a sense of its price support and resistance during regular trading hours, as well as potential price breakouts or breakdowns.
As shown on chart A, on 9 June, the price was approximately USD$263. The next day when the regular trading hours started, Sea Limited opened at around USD$268, 2% higher from the previous close. With access to Pre-Market trading, investors have the potential to leverage on such opportunities. Thus, extended hours allow investors to better manage their positions from swing in prices.
3. Access to longer trading hours
Compared to those without access to Pre-Market trading, they are restricted to regular trading hours and will have to limit their trade strategy. Additionally, access to Pre-Market trading allows investors to place trades at their convenience as the trading window is longer.
Ultimately, Pre-Market participants are able to act swiftly to market news. This allows risk management in terms of trade positioning. Plus the longer trading hour provide convenience for investors to transact. Hence, investors should consider Pre-Market trading because of the opportunities it entails.
Risks in Pre-Market trading
1. Non-consolidated price quotes.
In regular trading sessions, the price quotes you see are consolidated and represent the best available prices across all trading venues. In after-hours trading, price quotes are not consolidated. You may only see prices from one ECN and these may not reflect the prices displayed in other electronic trading systems for the same stocks.
2. Lower liquidity
During regular trading hours, buyers and sellers can trade readily with one another. During after-hours, there may be less trading volume for some stocks, making it more difficult to execute some of your trades. Some stocks may not trade at all during off-hours.
3. Greater volatility
Prices can be far more volatile than usual in Pre-Market trading. This is because limited volume can make prices rise and fall more rapidly and steeply than usual. For stocks with limited trading activity, price fluctuations may be greater than during regular trading hours.
4. Not always reliable indicators of regular trading sessions
Pre-Market price trends can be deceptive. Even when stock prices appear to be rising during Pre-Market trading, they may drop sharply at the opening bell.
As an illustration, the following screenshots were taken during Pre-Market and regular trading sessions on POEMS.
Image A: POEMS pre-market screenshot
Image B: POEMS regular trading screenshot
The low volume in Image A gives a perception of price strength or weakness that can be misleading. When the market opens, trading volume is vastly different from Image B.
This suggests that pre-market movements are not always accurate in predicting price movements in regular trading sessions.
Differences between Pre-Market and regular trading
The table below captures some of the differences between Pre-Market and regular trading sessions.
|Liquidity and volume||Low||High|
|Susceptible to higher or lower price gaps (refer to chart A above)||Yes||Generally no|
|Price movements||Prices are determined by a small collected group of investors which may be heavily influenced by market news. E.g. Earnings release||Proper supply and demand of price movements dictated by all market participants which ensures orderly price movement.|
|Market participants||Predominantly institutional investors||Both institutional and retail investors|
Is Pre-Market trading better than regular trading?
Competition is more intense in Pre-Market hours because there are fewer participants to offer quotes. This explains the wider bid-ask spread during Pre-Market trading.
Pre-Market trading can also only be executed with Limit Orders through ECNs. In regular trading, investors and traders can place a variety of advanced order types such as Market Order, Limit Order, Stop Limit order, MOO (market on open) and MOC (market on close).
ECNs are electronic trading systems that automatically match buy and sell orders at specified prices, without middlemen. Different ECNs and brokerages have different rules for Pre-Market trading. As an investor, you may not be able to complete a trade with another investor if you are on different, incompatible ECNs. Any computer delay at your brokerage can also slow down your trade or block it altogether.
What are POEMS’ Pre-Market trading hours?
Pre-Market prices on POEMS are only available from 07:00 EST to 09:30 EST during US daylight saving time. Pre-Market orders can be placed from 07:00 EST onwards and will be valid up till market opening at 09:30 EST. Any unfilled orders will be carried forward to the regular trading session.
|Pre-market start time||Pre-market end time||Regular market start time||Regular market end time|
|US Eastern Standard Time (EST)||07:00||09:30||09:30||16:00|
|Singapore time (daylight saving)||19:00||21:30||21:30||04:00|
|Singapore time (non-daylight saving)||20:00||22:30||22:30||05:00|
Pre-Market quotes will only be available from 07:00 EST to 0:930 EST.
About the author
Lee Ying Jie (Dealer), Jonah Sim Hong Chee (Dealer) & Lee Yong Heng (Dealer)
Ying Jie is a US Equity executive in the Global Markets Team and specializing in US and Canadian markets. He is proficient in trading using Technical Analysis, placing emphasis on supply and demand, and price action.
Jonah Sim is a US Equity Dealer in the Global Markets Team and specializing in US and Canadian markets. He graduated from University of Essex with a Bachelor Degree in Banking and Finance.
Yong Heng joined Phillip Securities in June 2020 this year as an Equity Dealer in the Global Markets Team. He specializes in the US and Canada markets assisting clients and also supports the UK and Europe markets. Yong Heng graduated with First Class Honours from Singapore Institute of Management, University of London (SIM-GE) in 2015 with a Bachelor’s Degree in Economics & Finance. He also completed his CFA studies last year.