What it means
Regular trading on an exchange has set opening and closing times. Pre-market trading happens in the hours before the official open, through electronic systems that match buyers and sellers.
The exact hours depend on the exchange and on the broker, and not every broker offers access. News drives much of the activity.
Companies often release earnings or announcements outside regular hours, and global events happen while a local market is closed. Traders use the pre-market session to react early, so prices in this session give a first hint of how the regular session may open.
The session is quite different from regular trading. There are fewer buyers and sellers, so trades are smaller and the gap between the best price to buy and the best price to sell, called the bid-ask spread, is usually wider.
A single large order can push the price much further than it would during the day. Because of these conditions, most brokers require limit orders in the pre-market, which fix the maximum price you will pay or the minimum you will accept.
Using a market order in a thin session can result in a bad price. Prices seen before the open may also change substantially once the full crowd arrives.
For finance teams, the pre-market is a useful early signal but not a reliable forecast. The pre-market price of a share can swing, then reverse by the open, so it should be read together with volume and news.
Corporate treasury and investor relations teams watch it after announcements to see how the market has reacted. Technology and regulation shape who can take part.
Retail investors now have broader access than in the past, but brokers set their own cut-off times, fees and order rules. Anyone planning to trade early should check their broker's terms and know which exchange feeds drive the prices they see.
In practice
Real-world examples.
Example
A pharmaceutical company announces the results of a clinical trial at 7 a.m. Its shares trade up 12% in the pre-market on low volume, and investors wait to see whether the price holds at the open. By the opening bell the gain has narrowed to 7%.
Example
An investor wants to sell shares after bad news appears overnight. She places a limit order in the pre-market at a price slightly below the last trade, to avoid selling at an unexpectedly low price. The order is filled only partly, which she accepts as the cost of protecting her price.
Example
A company's investor relations team watches the pre-market after publishing its quarterly results. The share is down 3% on thin volume, and the team prepares for questions from analysts at the open. A short note is drafted to explain the numbers once more.
Formula
Calculation
Pre-market change (%) = (Pre-market price - Previous closing price) / Previous closing price x 100%
A company's share closed yesterday at $50 and it released strong results overnight. In the pre-market session the share trades at $53.
Pre-market change = ($53 - $50) / $50 x 100% = $3 / $50 x 100% = 6%.
If the share opens at $53 and the company has 10,000,000 shares in issue, its market value would rise by 10,000,000 x $3 = $30,000,000 compared with the previous close.Case study
Seen in the real world.
Aldergate Software is a fictional listed company that released its earnings report before dawn. In the pre-market, its share price jumped 15% on very low trading volume.
The chief financial officer reminded the board not to read too much into the move, because only a few thousand shares had changed hands. In this illustrative case, the price fell back and the share opened up only 4%, and the investor relations head used the experience to teach managers that early prices on thin volume are an indicator of sentiment and not a final verdict.
The company later added a note to its media briefing explaining how pre-market prices should be interpreted. It also shifted the timing of its releases so that executives were available for questions when the regular session started. Analysts valued the quicker access, and the follow-up questions were more informed.
Watch out
Common mistakes.
- Treating a pre-market price as the price at which the share will open.
- Using market orders in a thin session, which can lead to poor prices.
- Ignoring the volume behind the move, when a large price change on only a few hundred shares says little about what the wider market thinks.
Questions
People also ask.
When is the pre-market session?
It runs before the regular open, but the exact hours depend on the exchange and the broker.
Can anyone trade in the pre-market?
Only if the broker offers access, and some limit it to certain accounts or order types.
Why are pre-market spreads wider?
Because there are fewer buyers and sellers, so the gap between the best bid and offer is bigger.
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