CNBC Premarket: A Shot for Prudent Equity Traders

Stock trading usually occurs during the hours of operation of the exchanges. But there is scope for trading beyond the operating window. For example, the New York Stock Exchange (NYSE), one of the major US securities markets, operates between 9.30 am and 4 pm EST but allows traders to trade securities on electronic exchanges before the regular trading hours. This type of trading, known as premarket trading, is common across all stock exchanges across the world. You can stay updated about trading activities by regularly following CNBC premarket trading data. CNBC regularly provides extensive coverage about the biggest premarket moves of selected stocks and securities. So the traders can gather a lot of information that helps them envisage market trends in advance.

What is CNBC Premarket Data All about?

Many traders and investors keep a close watch on premarket data to assess the direction and strength of the market and understand how it is likely to behave during the day. CNBC provides regular updates about what is happening during the premarket sessions that allow only limited execution of orders through an ECN or electronic communication network.

More about Pre-Market Trading

Trading outside the trading hours is a very scanty description of pre-market trading. Traders and those interested in trading during pre-market sessions must clearly understand what they can achieve through it. In 1991, the NYSE introduced Pre-market trading in response to the demand for global trading around the clock by allowing trading beyond the usual market hours. The growing popularity of computerized international trading boosted pre-market and After-hours trading after the exchanges close at 4 PM. After trading ends at 6.30 pm, pre-market trading is between 8 am and 9.30 am, Monday through Friday.

Limited volume and liquidity are a feature of pre-market activity. And the bid-ask spreads are usually quite large. Many brokers offer pre-market trading, but the type of orders that can be made might be limited during the pre-market session.

Most stocks experience minimal activity during the pre-market session early in the morning. Only stocks that make news might undergo a higher level of activity. As most stocks generally show sub-quotes, the liquidity is thin, too.

Due to the trading in S&P future contracts, the SPDR S&P 500 ETF (SPY) and other Index-based Exchange Traded Funds (ETFs) have moving quotes. Many of the top holdings in the benchmark indices that have significantly wide holdings may also get movement in the event of a significant down or gap in the S&P 500 futures.

Benefits of Pre-Market Trading

Retail investors can benefit from pre-market trading to catch the early bird based on overnight news. As trading starts before the physical markets open, it provides an opportunity for investors to latch on to some opportunity before the market gets crowded when regular trading commences. For example, suppose there is a major company announcement at night or news about geo-political development. In that case, the pre-market session is the best time to gain from trading in some selected stocks.

The operating hours of pre-market sessions might be convenient for those who need help to devote time to trading in stocks during the regular working hours of stock exchanges.

Stocks and Futures

Traders and stock market enthusiasts often talk about stock futures in the same breath but it is important to note that stocks and futures are entirely different, despite having some things in common. Most importantly, stocks and futures are based on other premises. Stocks allow the holders to gain ownership in a company, whereas they are nothing but contracts with expiration dates. Futures represent a commitment to sell or buy a specified quantity of underlying equity shares at an agreed-upon price. A futures exchange makes the futures available for trading after writing the terms but does not issue it. In typical contracts, there is an underlying obligation between buyers and sellers of futures when entering into futures contracts, whereas a company or corporation gives the shares. While shareholders may receive dividends, there is no such scope in futures contracts.

From the nature of futures, it becomes clear that it has no connection to pre-market trading that only involves shares and equities. Therefore, those interested in futures can refrain from monitoring CNBC premarket trading data.