All stocks allow pre-market trading; however there are many factors that will determine if an order will execute during that session before the market opens. Your brokerage company, news about the stock, quote reliability and supply and demand greatly affect the execution price and liquidity.
Choosing a Broker
The NYSE allows pre-opening limit orders to be placed as early as 3:30 a.m. ET on regular trading days and market orders between 4 a.m. and 9:29 a.m. ET (the NYSE opens at 9:30 a.m. ET). The Nasdaq also begins pre-market trading at 4 a.m. ET. Review broker websites to see when and if pre-market trading is allowed. Check for restrictions on order types and size to ensure that the trades you wish to place are acceptable before you select a brokerage company for your pre-session trades.
Favorable or damaging news stories released before and during the pre-market session can have drastic effects on stock prices. Quotes in the pre-market session are delayed and the bid and ask spread typically is wider than normal session trading. If your firm only allows limit orders, you may price your limit outside an executable range because accurate and timely information is difficult to acquire during pre-market sessions. A market order may execute at a much higher or lower price than anticipated.
Supply and Demand
A buyer and a seller willing to trade an equal number of shares must exist to execute a trade. Trading volume is significantly less during pre-market hours compared with the regular session. Competition with mutual fund institutions and other professional traders with direct order routing options can decrease the chances for individual investors to execute trades. Even though stocks are available for pre-market trading, it is possible those shares may never change hands.
Some brokers rout trades through one specific Electronic Communication Network, or ECN. Quotes from this broker will reflect trading action only at that specific ECN. If you have access to additional ECNs, your broker may be able to route your trade there at your request -- but keep in mind the quotes you see may still be delayed and your order could execute at a significantly different price. Lower trading volumes and reactions to news greatly affect stock prices in pre-market trading.
Renée Winn has served as a licensed stock broker, securities principal and corporate trainer for a large online brokerage. She is a regular contributor to several business content websites. Winn holds a Bachelor of Fine Arts in creative writing from the University of Nebraska at Omaha.