Is it Possible to Trade Stocks 24 hours a Day, Seven Days a Week in the Near Future?
Stock markets may be able to provide 24-hour trading in the future, similar to that which is now available on foreign exchange and cryptocurrency markets in the short term. 24 Exchange, a cryptocurrency and foreign exchange trading platform established in Bermuda, promises to introduce round-the-clock trading in the digital currency arena to the stock market by the end of the year. 24 Exchange filed forms with the Securities and Exchange Commission in October 2021 in the hopes of receiving a license to operate a 24-hour exchange in 2022. The company hopes to begin operations in 2022.
When large geopolitical events occur, news and announcements are often made after normal trading hours or over the weekend, which has the potential to cause huge market changes… Knowing what is going on in the market before the market opens enables you to better position yourself and protect yourself from risk in the event of such unanticipated occurrences.
Pre-Market Trading Containing Risks
We will now discuss the hazards associated with pre-market trading, which include the following:
• When compared to the thousands of traders and investors that participate in normal trading, there is significantly less activity in the pre-market. As a result, liquidity is limited and bid-ask spreads are large. Consequently, pre-market trading volumes are often a fraction of the levels seen during the main session of the stock market. The outcome of low trading volumes is restricted liquidity, increased volatility, and huge bid-ask spreads on the stock market.
• Traders should be aware that the prices of equities traded in the pre-market may differ dramatically from the prices of same stocks traded during normal business hours. The influence of significantly different trading volumes between pre-market and regular sessions on stock prices is another factor to consider. In other cases, pre-market stock prices may only represent prices from one or a small number of electronic communication networks (ECNs). As a result of the availability of multiple exchanges, electronic communication networks (ECNs), and market makers to provide stock prices during regular trading hours, better price discovery can be achieved; the stock quotes displayed are aggregated and represent the best bid and offer across all trading venues.
• In several cases, non-execution of limit orders may occur: Many brokerages only allow limit orders during prolonged trading hours in order to shield investors from unexpectedly bad pricing. Limit orders may only be executed at the limit price or a price that is higher than the limit price. The advantage of using this feature of limit orders is that the investor will know the maximum price at which a stock will be purchased and the lowest price at which a stock will be sold before placing the order. It does, however, imply that if the market diverges significantly from the limit price, the order will not be fulfilled.
• Competition from institutional traders: Retail traders face an uneven playing field in pre-market trading because many of the participants are institutional and professional traders who have a trading advantage due to their significantly larger financial resources and access to better and more timely information than retail traders.
Because of these hazards, only experienced traders should consider participating in pre-market trading, since the odds are stacked against regular traders. The knowledge and experience of seasoned traders allows them to assess the numerous nuances that make trading difficult, such as determining whether the pre-market reaction to news is an under- or over-reaction, and to take decisive action on trading matters such as opening a new stock position or closing an existing one, setting limit prices at specific levels for buys and sells, and so on.
Is it Possible to Trade Ahead of the Market’s Opening?
The first day of pre-market trading may begin as early as 4 a.m. EST, however the majority of it takes place between 8 and 9 a.m. EST, and before normal trading begins at 9:30 a.m.
Can I Trade in the Pre-market Session if I don’t Want to Trade in the Market? Options?
In most cases, only publicly traded equities are available for trading during the pre-market session. However, not all stocks are created equal. Companies with a restricted float or that are not widely owned, as well as small-cap companies, may not have sufficient volume to make pre-market trading a profitable proposition. During the pre-market period, option trading are not authorized.
Do Online Brokers Provide Access to Pre-market Trading Opportunities?
Pre-market trading is available at almost all online brokers, albeit the hours vary from one broker to the next depending on the firm. As of December 21, 2021, the following are examples of pre-market trading hours at chosen online brokers (please keep in mind that these hours are subject to change):
• Pre-market trading is available from 7 a.m. EST to 9:28 a.m. EST on the TD Ameritrade platform.
• When trading at Charles Schwab, pre-market orders may be made between 8:05 pm (the previous trading day) and 9:25 am (the following trading day), and they are eligible for execution between 7 am and 9:25 am (the next trading day).
• Pre-market trading is available from 7 a.m. EST to 9:30 a.m. EST on the E*TRADE platform.
• Trading is available for Interactive Brokers’ “IBKR Pro” accounts from 4 a.m. EST to 9:30 a.m. EST, as well as for its “IBKR Lite” accounts from 7 a.m. EST to 9:30 a.m. EST, during the pre-trading hours.
• The pre-market trading period at Robinhood runs from 9 a.m. EST to 9:30 a.m. EST; however, deals may still be conducted as early as 8:58 a.m. EST if the market is open.
• Pre-market trading is available from 4 a.m. EST to 9:30 a.m. EST on Webull’s platform.
Is it Possible to Carry Over a Limit Order from Pre-market Trading into the Regular Session?
A majority of time, limit orders placed during pre-market trading are only valid for that specific session and do not carry over into the normal trading session if they are not executed. However, Interactive Brokers allows limit- or stop-limit orders to be active during all trading sessions, including pre-market, regular trading hours (RTH), and after-market; in order for such orders to be active during all trading sessions, the attribute “Allow Outside RTH” must be included in the order.
Why Is It Necessary to Have Extended Trading Hours?
The ability to trade throughout extended hours allows investors to respond to news and events that occur while the markets are closed. People who can’t purchase or sell shares during the usual trading session may take advantage of this simple trading option as well.