As we all know, the stock market has regular trading hours, from 9.30 a.m. to 4 p.m., Monday to Friday. During this time, the stocks on the market are liquid and efficient. But, the stock market is basically also open before and after that hours. The pre- and post-market sessions are between 4 a.m. to 9.30 a.m. and 4 p.m. to 8 p.m.
Trading during those sessions means you will only have the chance to trade a small fraction of the market volume during the day. Thus, traders commonly face various problems trading in that session.
Things to Consider before Trading Pre- and Post-Market Sessions
There are still possibilities for traders to make a profit in that session, yet according to the Investopedia, they need to do research on various things.
The Reaction to Company Announcement
Annually companies make an announcement about their performance, like earnings reports. Yet, companies do not like to make an announcement in the regular trading sessions.
They do that to avoid a significant reaction that may distract the true value of their stocks. If, for example, the company announced its worse last quarter earnings, then they will experience a big scale move out.
But, if they announce that during the pre- and post-market session, then the value of the stock will still move. To access that, therefore, traders need to also consider trading in post-market sessions.
So, if you trade when there is an announcement, you need to give the right reaction. Once the regular market hours open, the shares price usually has already changed and reflected its right value.
Economic Indicators
Most of the economic indicators, like labor statistics, are released before the trading hours begin in New York. The indicators, normally, will give a significant effect to the market. There might be big price movements and create volatility.
Thus, if you trade during the pre- and post-market, you need to also ready to face that volatility.
Limited Liquidity
Trading not in regular hours used to be the benefits for institutional investors. In the past retail investors, cannot do that. But, nowadays can have access due to the market transaction that has moved into computerized trading.
Yet, these markets are illiquid since there are fewer traders participate in the market. Imagine that there is an announcement of worse earnings. Then, you want to sell your shares, you may face difficulties to find the buyer. Especially, if the shares belong to smaller non-blue-chip companies.
