Pre-Market and After-Hours Trading Activities

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Pre-Market and After-Hours Trading Activities

Some of the most significant market changes may occur outside of the New York Stock Exchange (NYSE) and Nasdaq’s normal trading hours of 9:30 a.m. to 4:00 p.m. EST (Eastern Standard Time).

The typically tumultuous pre-market trading session is closely watched to determine market sentiment ahead of the regular market open. Price volatility is caused by causes outside of the usual trading session, and learning how to trade stocks and futures during this time provides a chance for profit-seeking investors. After the closure, investors take stock of the day and make deals that would have been too volatile straight at the close.

Key Takeaways

  • Pre-market and after-market trading are used to predict when the normal market opens, and there are methods to profit from this trading session.
  • Investors may utilize pre- and post-market sessions to get news releases and updates that aren’t available during regular market hours.
  • Economic indicators and earnings announcements are examples of news and releases that investors should be aware of.
  • Pre- and post-market trading may be facilitated via electronic communication networks (ECNs).

Economic Indicators

Economic data are important price drivers in the pre-market trading period. The bulk of big economic announcements are released at 8:30 a.m. EST, one hour before the New York market starts. The market’s response to the data may create significant price movements and set the tone for the rest of the day.

The Employment Situation Summary, released by the Bureau of Labor Statistics at 8:30 a.m.EST on the first Friday of each month, has the largest market influence. Other important market-moving figures issued around 8:30 a.m.EST include GDP, retail sales, and weekly unemployment claims. Examining expert forecasts for these figures can help you understand market response.

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The largest market changes usually happen when the figure considerably exceeds or fails the predicted projection, resulting in extreme volatility and the trading risks and possibilities that go with it.

Earnings Releases

The time during which publicly listed corporations submit their quarterly earnings reports is referred to as earnings season. Earnings season begins one or two weeks following each quarter’s finish. As a result, most corporations report results in early to mid-January, April, July, and October. During this period, firm results are often announced before and after the market opens and closes, producing significant price movements in the underlying equities outside of normal trading hours.

The strongest responses, like with economic indicators, often come when a corporation significantly exceeds or fails expectations. The ability to trade after hours helps the stock trader to respond fast and perhaps gain on the early response to favorable or bad news.

Major News Events

Major geopolitical events are often published after normal trading hours or over the weekend, possibly producing huge market swings. Unexpected occurrences such as wars and natural catastrophes might catch the market off guard at any moment. Having early access to the market helps you to better position yourself and hedge against risk in the event of such unanticipated occurrences.

Trading Stocks on ECNs

Electronic communication networks (ECNs) are a method that allows traders to trade stocks after hours. ECNs are electronic trading systems that match buy and sell orders at predetermined prices, enabling big brokerage companies and individual traders to trade directly among themselves without the need for a middleman such as an exchange market maker.

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Most orders submitted via ECNs are limit orders, which is beneficial since after-hours trading may have a significant influence on a stock’s price.

Pre-market trading in equities takes place from 4 a.m. to 9:30 a.m. EST, while after-hours trading on a regular session day takes place from 4 p.m. to 8 p.m. Many retail brokers offer to trade during these sessions, however the sorts of orders that may be utilized may be limited.

One significant factor to remember is that liquidity is often substantially reduced when trading outside of normal market hours. The gaps between bid and offer prices are often greater, and the “thin” level of trading may result in more volatility, with all of the hazards and possibilities that entails.

The Futures Market

In the pre-market session, the futures market, particularly the benchmark S&P 500 futures contract, is carefully watched to determine market mood for the day. Futures contracts are standardized contracts that allow you to purchase or sell an item at a preset future date and price, such as a physical commodity or a financial instrument.

Futures contracts on financial indexes such as the Dow, Nasdaq, or S&P 500 are known as stock index futures. The E-mini S&P 500 futures contract on the Chicago Mercantile Exchange is the world’s most frequently traded stock index future.

E-mini S&P 500 futures, which trade practically 24 hours a day, may predict how the market will move at the start of the New York session open. Money managers often utilize S&P 500 futures to either hedge risk over a certain time period by selling the contract short or to boost their stock market exposure by purchasing it.

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Aside from providing market access nearly 24 hours a day, trading E-mini S&P 500 futures has a high liquidity level. Bid-to-offer spreads are continuously narrow. The spread is practically a market entrance fee. Tight spreads are important since the bigger the spread, the more the transaction must move in your favor to break even.

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