Pre market stock trading is that type of trading style wherein trading takes place before regular hours of the market. The reason people like to take part in pre-market stock trading is evident- they want to be on top of the game and grab every opportunity as and when it is possible.
1-Liquidity is a phenomenon that largely depends on the compatibility of buyers and sellers and the level of difficulty with reference to the completion of the trade. When one is trading during regular hours, that is, in trading terms, the level of difficulty is quite low. However, pre market stock trading raises this level of difficulty as a particular category of stocks is not available for trade during pre-market hours.
2-When stocks are traded during regular hours; price variations may not take place all that often. However, the opposite happens when one is dealing pre market stock trading. Therefore, a large number of negative factors can have a great impact on the nature and health of the stocks during pre-market hours.
3-As trading during pre-market hours is quite slow when compared to the same during regular hours, the execution of transaction may take time. Therefore, pre market stock trading is unfavorable in this respect as this problem is almost non-existent during regular trading hours.
4- Individual stock traders may find it difficult to reach the top of the game as a large number of professional investors and those who work in large institutions take an active part in pre market stock trading. It is quite difficult for individual investors to “win” against the above-mentioned traders as they have easy access to additional information.
5-The problems associated with online trading are made bigger during pre market stock trading. For example-delays associated with computer networks and services can largely affect the execution and health of transactions. One may find simple tasks associated with trading quite arduous. If such a problem takes place during pre-market hours, the individual investor must carry out a detailed discussion with his broker in order to reach a sound solution.
6-The prices of a particular kind of stocks are different during pre-market hours as compared to regular hours. Therefore, if the price of a particular stock is say, $B, it is not necessary that it may be the same or even close to it in the beginning of the next regular session or even at the end of it. This vagueness can cause a lot of insecurity amongst traders and lead to additional trading problems.
7-Several firms reserve particular trading systems for the purpose of pre-market stock trading. Therefore, pre-market stock investors can access only that trading system for the purpose of acquiring quotes. Stock traders must make sure that they have access to a decent number of trading systems. This is important in the respect as conclusion of a particular transaction may be difficult otherwise.
These risks associated with pre-market stock trading are very important to be kept in mind and must not be ignored if one wants to excel in the field