Benefitting from Premarket and After-Hours Trading

Many important market events and market movements happen outside of the regular trading hours of 9:30 am to 4 pm EST.

The price volatility moves by forces that are outside of the regular session. Knowing how to trade during this period gives an investor a better chance of recording some profits.

Economic Indicators

The release of economic indicators are key drivers of prices during the premarket trading session. A big number of important economic data is released at 8:30 am EST, just an hour before the New York market starts for the day.

The market’s reaction to the data can trigger significant price moves and set the trading tone for the day.

Among the many indicators, the release of the Employment Situation Summary by the Bureau of Labor Statistics every First Friday of the month has the biggest impact on the market.

Other market-driving economic indicators include the gross domestic product data (GDP), retail sales, and weekly jobless claims.

These numbers will also make more sense when you compare them to the analysts’ expectations. Typically, the wildest market movements take place when the official figures are better or worse than what analysts have expected. This spurs volatility, which in turn creates market risks and opportunities for traders.

Earning Reports

The earnings season refers to the time when publicly traded companies report their earnings results. This season starts one or two weeks after the end of each quarter.

As a result, earnings seasons usually happen in early-to-mid January, April, July, and October. During this period, companies release their earnings reports before the market opens and after the close, usually spurring wild price moves in the underlying stocks outside regular trading hours.

As with economic indicators, the largest reactions often happen when a company substantially beats or misses the market’s anticipations.

When you have access to extended traded hours, you also have the chance to react quickly and you may even capitalize on the initial reaction to positive and negative news.

Major News Events

News and announcements of major geopolitical events are usually reported after regular trading hours or over the weekend, likely causing massive market movements.

Natural disasters and news of tensions or wars are some examples of unexpected events that can catch the market off-guard any time.

Having the access to the market before trading starts lets you position yourself better and hedge against the possible risks in the event of such unpredictable events.

ECN Trading

Electronic communication networks (ECN) are what enables traders to take part in extend hours of stock trading. ECNs are electronic trading systems that automatically match a buyer and seller at a specified price.

This system lets major brokerage firms and retail traders to trade directly among themselves without the services of a middleman such as an exchange or a market maker.

When trading premarket and after-hours, some brokerage firms only let investors view quotes from the ECNs that the firm uses.

You also have to note the liquidity, which is typically much lower when you’re trading outside of the regular market hours.