Pre-market trading, also known as pre-opening or pre-hours trading, is a period during which investors can buy and sell stock outside of the normal trading hours of the exchange. The pre-market trading session usually begins at 4:00 a.m. EST, or one hour prior to the opening of the regular market, and ends at 9:30 a.m. EST when the regular market opens.

Although pre-market trading is open to all investors, very few people actually participate in it due to illiquidity and large bid-ask spreads. Because of the thin trading volume during pre-market, the prices of stocks can move up and down more dramatically than during the regular trading hours.

Investors may choose to participate in pre-market trading for a variety of reasons, including both taking advantage of market news or rumors that are released prior to the regular trading hours, or to hedge against the risks posed by market volatility. Additionally, some investors and traders may choose to use pre-market trading as a means to gauge how the day’s trading activities may go and adjust their regular trading activities as needed.

Due to the risks associated with pre-market trading, it is important for investors to understand the fundamentals of trading and the implications of pre-market trading. Pre-market trading is typically very volatile, lacking in liquidity and increasing the chances of getting a low or high price. Furthermore, thin volumes can result in wide bid-ask spreads, and the potential for a lack of counterparty for a particular stock. Thus, it is important for any investors considering engaging in pre-market trading to understand the potential risks and rewards before diving in.

Despite its risks, pre-market trading is a viable risk management and trading strategy for those investors and traders that are familiar with the market and have the risk tolerance and resources to monitor their trades. With pre-market trading, traders have the potential to benefit from price changes that they may not have been able to capture in the regular trading sessions. In the end, pre-market trading can be a great investment strategy for those willing to take the risk.