Many investors and traders watch the pre-market trading activity to judge the strength and direction of the market in anticipation of the regular trading session. Pre-market trading can only be executed with limited orders through an "electronic market" like an alternative trading system (ATS) or electronic communication network (ECN).
Are premarket prices volatile?
You should keep in mind that prices can be far more volatile than usual in premarket trading. Limited volume can make them rise and fall more rapidly and steeply than usual. And traders used to more moderate trading could take significant losses from rapid premarket price changes.
Why is a premarket session so difficult to trade?
The premarket session is much trickier to trade than the regular session. That’s mainly due to the lack of liquidity and trading volume in the premarket. There just aren’t many traders at their screens ready to buy and sell. The lack of liquidity and volume means that the bid-ask spreads are wider.
Can I place a premarket order?
In regard to order types, you can only place limit orders. Market orders aren’t allowed premarket. That’s due to the exchange not wanting big traders to smack the price around too much. The orders you place are also only valid for that current premarket session. When the regular session opens, the orders you placed will be canceled.
