Brokers With Pre-Market Trading

Brokers with pre-market trading enable their clients to respond early to news and events that can affect a security’s opening price. Pre-market hours are distinct from core trading sessions with fewer investors and high-risk, high-reward opportunities. This guide will discuss what pre-market trading is, how it works, plus the pros and cons of investing in this window. We have also compiled a list of the top UK brokers with pre-market trading.

Pre-Market Trading Explained

The majority of trades take place during regular sessions which are known as the core trading hours. The start times for these trading windows vary between exchanges and markets. For example, the New York Stock Exchange opens at 13:30 AM (GMT) while the London Stock Exchange opens at 07:00 AM (GMT). Forex pairs can be traded 24 hours a day midweek and typically start on Sunday evening. On the other hand, cryptocurrency exchanges such as Kucoin, are open 24/7.

Clients of brokers with pre-market trading can access these markets before the core trading sessions begin. Typically, there are fewer traders and less liquidity meaning wider spreads. This period of the day is often used by traders to gauge market sentiment to help plan trades for when the core session starts. With that said, other traders aim to generate profit directly from the pre-market trading window.

Note, pre-market trading is generally restricted to futures and limit orders for stocks and shares. Certain derivatives such as stock options are also not usually sold during this time.

How Pre-Market Trading Works

Market makers do not typically start until the core trading hours, so when using UK brokers with pre-market trading, you are normally buying and selling via electronic communication networks (ECNs). ECNs are used to connect buyers and sellers directly to fulfil orders. And because there are fewer traders online during pre-market hours, there is a chance that your order won’t be processed.

For example, you place a buy order for 100 shares of Amazon stock at $124 per share. However, if there are no compatible sell orders, then your buy order will not be completed. At this point, you must either change your limit order price or wait until there is a counterparty to your trade.

Keep in mind that the order is only valid during the pre-market session. Once the core session begins, you will likely need to place the order again.

Importantly, brokers with pre-market trading do not necessarily open trading at the same time as exchanges. Just because the NYSE pre-market starts at 13:30 GMT, for example, not every broker will start accepting orders at this time.

Benefits Of Brokers With Pre-Market Trading

• React sooner to after-market news from the day before or over the weekend
• Access to international markets at a more convenient time. NYSE pre-market opens at 04:00 AM ET, which is 08:00 AM GMT, making it a popular option for traders based in the UK and Europe

Drawbacks Of Brokers With Pre-Market Trading

• Less liquidity
• Wider bid-ask spreads
• Only available on certain trading platforms
• Trading is often processed via ECNs so orders may not be fulfilled

Pre-Market Trading Strategies

Follow The News

One of the key benefits of investing with brokers with pre-market trading is being able to react to overnight or weekend news before other traders. Positive news could mean the asset will increase in price with traders wanting to invest and vice versa for negative news.

Always consider the time of the week, month or even year for upcoming announcements or press releases, for example, quarterly earning reports which can impact a stock’s price.

Capitalise On Dips & Rips

During pre-market trading hours, you may find that certain assets have wider price fluctuations. One indication of this could be securities valued outside of resistance levels from previous days and weeks. These big swings can provide an opportunity to buy or sell assets with the intention of selling to or buying from investors who may be more impulsive once core trading begins.

Ambitious Limit Orders

Take advantage of the high volatility during pre-market by placing limits on desirable assets but at better prices than what they are currently trading at. A limit order will only carry out the purchase or sell action at a specific price or better. Meaning, that if you open a buy limit order, you will only purchase the shares at the chosen price or less.

There is a chance that they are not fulfilled, but even so, brokers with pre-market trading provide an opportunity to execute trades at better prices than what you would normally expect.

Tips For Pre-Market Trading

Follow Level 2 Market Data

When using brokers with pre-market trading, it is helpful to view level 2 market data as it shows you the live bids and asks for an asset. This is the best way to see how an asset is valued in real time which can guide the limit orders you place.

Comparing the bid-ask spreads with price history charts can be a good way to see if you should buy, sell, hold or avoid an asset altogether.

Risk Management Techniques

Trading at brokers with pre-market hours carries a greater level of risk so it is important to protect your capital. Volatility and fewer traders can mean it is more difficult to predict stock price changes accurately.

Risk management techniques include spreading your trades out across several different assets and limiting individual trades to 1% or 2% of your total capital.

Prepare

Just because there is limited time for pre-market trading, does not mean you should rush into a trade. Stay disciplined and take time to research potential entry and exit positions.

For this, you can use technical analysis and set your own risk tolerance to guide your investments.

How To Identify Trades

Complete Analysis

As with trading during core hours, you should do plenty of technical and fundamental research. It is key that you stay in the loop on news as certain events that have taken place overnight can impact market sentiment and therefore influence if a stock price will rise or decline.

Additionally, you can use indicators such as pivot points and Fibonacci lines to help identify price movement patterns as well as support and resistance levels.

Use Screeners

Screeners are useful tools to filter markets to find the biggest gainers or most traded assets during pre-market trading sessions. Brokers with pre-market trading that offer screeners essentially help you to see what other traders are investing in and where there is likely to be liquidity. As these assets have more volume, there is a better chance of a limit order being fulfilled because more investors are trading.

Compare Industries

Looking at wider sectors and industries can be a good way to find assets that you should focus on during pre-market hours. You may find that certain sectors see greater gains than others. For example, if you find that the energy industry is out-growing the finance sector, you may want to focus on stocks such as Chevron, Exxon Mobil and Shell.

Are Brokers With Pre-Market Trading Good Or Bad?

Trading during pre-market hours carries more risk due to the increased volatility and lower liquidity, however, there are still opportunities to earn returns. Beginners and experienced traders alike should take the time to understand how markets work before core trading hours and develop a suitable strategy.

Use our list of the top UK brokers with pre-market trading to get started.

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