Who Gets to Trade in Pre-market Trading?

A company could report its earnings results before the stock market opens.

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Corporate developments aren't limited to the formal trading day on Wall Street. Sometimes, newsworthy events occur when the sun's setting or rising, and you might be looking for ways to capitalize on this. The major U.S. exchanges, including the New York Stock Exchange Euronext and Nasdaq, have pre-market trading platforms that allow both institutional investors and individuals like yourself trade shares outside of normal-market hours. The questions boil down to whether or not a security actually trades in the pre-market and whether or not you've got a brokerage account.


Pre-market trading wasn't always opened to individual investors like yourself. At first, it was reserved for institutional investors, such as mutual funds and other professional traders. In 1999, this changed with the advent of Electronic Communication Networks, the brokerage platforms on which individual investors place trades in the pre-market hours. Even still, you've got a limited time in which to place your trades before the opening bell rings on Wall Street. The pre-market trading window is a short hour and a half leading up to 9:30 a.m. ET on weekdays.


While the major stock exchanges have made it possible for you to trade in the pre-market, fewer and fewer investors are choosing to do so, according to a 2011 article on the Market Watch website. For instance, only 2 percent of overall stock trading volume on the major exchanges occurs before and after the stock market closes, according to the Nasdaq's Wayne Lee, cited in the Market Watch article. This is down 1 percent from 2000 levels.


One of the primary risks you'll encounter in the pre-markets is liquidity. This represents the number of shares available to be bought or sold in the market. For instance, not all companies make their shares available for trading in pre-market hours. And with fewer traders demanding shares coupled with less supply, you're less likely to get the best possible price when you sell your shares or get access to a stock at the most ideal price, either.


Mutual fund investors can also gain access to the pre-markets. By investing in mutual funds that are designed to trade in the futures markets, you're essentially gaining access to the companies that trade in indexes, such as the S&P 500, around the clock. You'll have to endure some dramatic price swings, however, as these funds encounter some of the same liquidity constraints that you'd find by trading individual securities in the pre-market.