3 Advantages of Trading US Stocks with Pre-Market Trading July 1, 2021

3 Advantages of Trading US Stocks with Pre-Market Trading

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.

https://www.investopedia.com/financial-edge/1112/trading-in-the-pre–and-post-market-sessions.aspx

https://www.cnbc.com/advertorial/2019/02/13/should-after-hours-trading-be-part-of-your-stock-market-strategy–.html

3 Advantages of Trading US Stocks with Pre-Market TradingChart 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.

https://www.cnbc.com/advertorial/2019/02/13/should-after-hours-trading-be-part-of-your-stock-market-strategy–.html


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.

https://www.sec.gov/reportspubs/investor-publications/investorpubsafterhourshtm.html


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.

https://www.sec.gov/reportspubs/investor-publications/investorpubsafterhourshtm.html


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.

3 Advantages of Trading US Stocks with Pre-Market TradingImage A: POEMS pre-market screenshot


3 Advantages of Trading US Stocks with Pre-Market TradingImage 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.

Table 1:

Characteristics Pre-Market Regular
Liquidity and volume Low High
Bid-ask spread Wide Narrow
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.

https://smartasset.com/investing/premarket-trading


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.

Table 1:

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.


Do drop us an email at talktoglobalmarkets@phillip.com.sg if you have any queries. You may also click here for more information on Pre-Market trading.


Disclaimer

These commentaries are intended for general circulation. It does not have regard to the specific investment objectives, financial situation and particular needs of any person who may receive this document. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of any person acting based on this information. Opinions expressed in these commentaries are subject to change without notice. Investments are subject to investment risks including the possible loss of the principal amount invested. The value of the units and the income from them may fall as well as rise. Past performance figures as well as any projection or forecast used in these commentaries are not necessarily indicative of future or likely performance. Phillip Securities Pte Ltd (PSPL), its directors, connected persons or employees may from time to time have an interest in the financial instruments mentioned in these commentaries. Investors may wish to seek advice from a financial adviser before investing. In the event that investors choose not to seek advice from a financial adviser, they should consider whether the investment is suitable for them.

The information contained in these commentaries has been obtained from public sources which PSPL has no reason to believe are unreliable and any analysis, forecasts, projections, expectations and opinions (collectively the “Research”) contained in these commentaries are based on such information and are expressions of belief only. PSPL has not verified this information and no representation or warranty, express or implied, is made that such information or Research is accurate, complete or verified or should be relied upon as such. Any such information or Research contained in these commentaries are subject to change, and PSPL shall not have any responsibility to maintain the information or Research made available or to supply any corrections, updates or releases in connection therewith. In no event will PSPL be liable for any special, indirect, incidental or consequential damages which may be incurred from the use of the information or Research made available, even if it has been advised of the possibility of such damages. The companies and their employees mentioned in these commentaries cannot be held liable for any errors, inaccuracies and/or omissions howsoever caused. Any opinion or advice herein is made on a general basis and is subject to change without notice. The information provided in these commentaries may contain optimistic statements regarding future events or future financial performance of countries, markets or companies. You must make your own financial assessment of the relevance, accuracy and adequacy of the information provided in these commentaries.

Views and any strategies described in these commentaries may not be suitable for all investors. Opinions expressed herein may differ from the opinions expressed by other units of PSPL or its connected persons and associates. Any reference to or discussion of investment products or commodities in these commentaries is purely for illustrative purposes only and must not be construed as a recommendation, an offer or solicitation for the subscription, purchase or sale of the investment products or commodities mentioned.

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.