Price uncertainty: Prices of stocks traded in the pre-market may diverge significantly from the prices of those stocks during regular hours.Low trading volumes result in limited liquidity, greater volatility, and wide bid-ask spreads. As a result, pre-market trading volumes are generally a fraction of volumes in the regular session. Limited liquidity and wide bid-ask spreads: The number of buyers and sellers of stocks is far fewer in the pre-market, compared with the multitudes of traders and investors during regular trading.

In such instances, a stock that trades higher in the pre-market will continue to trend significantly higher in the regular trading session, while a stock that trades lower in the pre-market will trend lower during regular trading. This is only possible if the pre-market reaction to news about a stock is accurate, and the stock does not fully discount the news in pre-market trading. Get a jump on the competition: Astute traders and investors who are familiar with trading patterns and experienced in extended-hours trading may use the pre-market to buy or sell stocks at more favorable prices, compared to prices obtained by other traders in the regular session.The ability to start the day early and place trades in the pre-market is a big advantage for most people due to the frenzied pace of everyday life. Convenience: This is a major benefit for the do-it-yourself investor because not everyone has a schedule that permits trading during regular market hours.For example, a stock that reports an earnings miss may be down significantly in pre-market trading but could reverse course and end the day higher in the regular session. The limited trading volume in the pre-market may provide a signal of weakness or strength that may not be borne out when the market opens and regular trading volumes are reached. The caveat here is that the pre-market reaction to such news may reverse in the regular trading session. Such news could be corporate earnings (although most companies report earnings after markets close, rather than before the open) or a major company announcement, overnight breaking news such as a geopolitical development, or news emanating from overseas markets. Provides an opportunity to react early to overnight news: Pre-market trading provides the retail investor with an opportunity to react to overnight news before the regular trading session commences.

Premarket trading market watch