Pre-Market and After-Hours Trading Activities

Some of the largest market movements may occur outside of the regular 9:30 a.m. to 4:00 p.m. EST (Eastern Standard Time) trading session of the New York Stock Exchange (NYSE) and Nasdaq.

The often volatile pre-marketing The trading session is widely watched to gauge the market outlook ahead of the regular open. Price volatility is driven by forces outside of the regular trading session, and knowing how to trade stocks and futures during this time is an opportunity for investors looking to profit from it. After the close is also important, as investors take stock of the day and make trades that may have been too volatile directly at the close.

Key points to remember

  • Pre-market and post-market trading is used to gauge the normal open of the market, and there are ways to take advantage of this trading session.
  • Investors can use pre-market and post-market sessions to take advantage of press releases and updates that are not presented during normal market hours.
  • Those news and releases that investors will want to pay attention to include economic indicators and earnings releases.
  • Electronic communication networks (ECN) facilitate pre- and post-market exchanges.

Economic indicators

Economic indicators are the main drivers of price action during the pre-market trading session. The majority of major economic releases are released at 8:30 a.m. EST, one hour before the New York market opens.Market reaction to data can cause substantial price movements and set the tone for trading for the entire day.

The Employment Status Summaryreleased by the Bureau of Labor Statistics at 8:30 a.m. EST on the first Friday of each month, is the release that has the biggest impact on the market.Other important market development reports released at 8:30 a.m. EST include the gross domestic product (GDP), retail sales, and weekly unemployment benefit claims. Looking at analysts’ expectations for these numbers will help you understand the market’s reaction.

Usually, the largest market moves occur when the number far exceeds or falls short of the expected forecast, creating high volatility and the accompanying trading risks and opportunities.

Publications on results

Profit Season refers to the period during which publicly listed companies publish their quarterly income reports. Earnings season begins a week or two after the end of each quarter. Therefore, most companies publish their results in early to mid-January, in April, July and October. Meanwhile, company earnings are usually released before the market opens and after the close, often resulting in significant price movements of the underlying stocks outside of normal trading hours.

As with economic indicators, the most significant reactions usually occur when a company exceeds or significantly exceeds expectations. Access to extended trading hours allows stock trader to react quickly and potentially capitalize on the initial reaction to positive or negative news.

Major news events

News and announcements of major geopolitical events are often reported after normal trading hours or over the weekend, which can lead to massive market movements. Wars and natural disasters are examples of unexpected events that can take the market by surprise at any time. Having access to the market before the market opens allows you to better position yourself and protect yourself against risks in the event of such unpredictable events.

Trading stocks on ECNs

Electronic communication networks (ECN) are a mechanism that allows traders to participate in stock trading for extended hours. ECNs are e-commerce systems that automatically match buy and sell orders at specified prices, allowing large brokerage firms and individual traders to trade directly with each other without the need for a middle man as an exchange market maker.

Most orders placed through ECNs are usually limit orders, which is fortunate given that after-hours trading often has a noticeable impact on a share price.

Pre-market stock trading takes place from 4 a.m. to 9:30 a.m. EST, and after hours trading a day with a normal session takes place from 4 p.m. to 8 p.m. Many retail brokers offer trading during these sessions, but may limit the order types that can be used.

An important consideration is that the level of liquidity is generally much lower when trading outside normal market hours. Spreads between bid and ask prices are often wider, and the “low” level of trading can lead to higher volatility, bringing with it associated risks and opportunities.

The futures market

The forward marketespecially the benchmark S&P 500 future contracts, is closely watched in the pre-trade session to gauge market sentiment for the day. Futures contracts are standardized contracts to buy or sell an asset, such as a physical commodity or a financial instrument, on a future date and at a predetermined price.

Store index futures are futures contracts on financial indices such as the Dow, the Nasdaq or the S&P 500. The Chicago Mercantile Exchange E-mini The S&P 500 futures contract is the most actively traded stock index futures contract in the world.

Trading virtually around the clock, E-mini S&P 500 futures contracts can indicate the likely market trend at the start of the New York open session. S&P 500 futures contracts are often used by fund managers to hedge the risk over a period of time by selling the contract short or to increase their stock market exposure by buying it.

In addition to offering nearly round-the-clock market access, a major advantage of trading E-mini S&P 500 futures represent the high level of liquidity. Bid-to-offer spreads are still tight. The spread is effectively a market entry cost. Tight spreads are essential because the wider the spread, the more the trade has to move in your favor just to break even.

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