Even before the exchanges open, you may be able to buy and sell stock. Image source: Wikipedia.
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It is possible to buy stock on the major U.S. exchanges outside of the normal trading day, which runs from 9:30 a.m ET to 4:00 p.m. ET, in what are known as "extended hours" trading sessions. The trading session that takes place before the market opens is known as the pre-market session, and many U.S. brokerages allow customers to trade in the pre-market hours -- although the hours, costs, and procedures can vary.
Pre-market trading hours and costsThe exact time window during which you can buy or sell stocks in the pre-market session depends on your broker. For example, Scottrade has a relatively long pre-market trading session that runs from 6:00 a.m. ET to 9:28 a.m. ET, while TD Ameritrade limits pre-market trading to a 75-minute window between 8 a.m. ET and 9:15 a.m. ET. A few brokerages don't offer pre-market trading at all. The NASDAQ allows pre-market trading as early as 4:00 a.m. ET, so there are many possible time windows brokerages can offer.
If you're interested in participating in the pre-market trading session, check with your brokerage to find out when you can trade.
The cost and procedure of pre-market trading also varies, depending on the brokerage. Many, such as the aforementioned Scottrade and TD Ameritrade, simply charge their regular commissions for pre-market trades. Others have a special fee schedule, or have a surcharge, like E*TRADE, which charges an additional $0.005 per share for extended-hours trades. Your broker's particular pre-market policy should be available on their website, or by calling their customer service number.
Benefits of trading before the market opensThe main benefit of having access to pre-market trading is the ability to immediately react to news items, such as earnings reports. In general, by the time the normal trading session begins, stocks will have made their reactionary moves and it will be too late to place a trade to ride the earnings reaction.
Risks of trading before the market opensIt's important to point out that there are numerous risks involved with pre-market trading that don't apply to the normal trading session. The main risks include:
- Lower liquidity: There are generally fewer buyers and sellers participating in the extended-hours trading sessions, and therefore it may be tougher to buy and sell shares for a competitive price.
- Higher volatility: There can be greater volatility during the pre-market trading session, especially when news items involving a particular stock are released.
- Wider spreads: Bid/ask spreads can be much higher in the pre-market session.
This isn't an exhaustive list, and if you're thinking of trading in the pre-market session, TD Ameritrade publishes a thorough description(link opens PDF) of the risks involved.
The article Can I Buy Stock Before the Market Opens? originally appeared on Fool.com.
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