Trading outside official hours: pre-market in the traditional and crypto sectors

Basic Information

Pre-market refers to trading activity that occurs outside of standard trading hours. On traditional stock exchanges, this takes place in the early morning hours before trading sessions begin on platforms like the NYSE and NASDAQ. In the cryptocurrency ecosystem, the concept of pre-market has taken on a different meaning – it involves trading tokens that have not yet received official status and are not listed on major exchange platforms.

How does pre-market trading function in the crypto space?

Cryptocurrency pre-markets operate on principles similar to peer-to-peer platforms, but specialize exclusively in pre-launch instruments. When a new project announces the release of a token through an IEO, a pre-market is created on a decentralized or centralized platform before the tokens are officially available. This allows early investors to start trading yet-to-be-released assets, establish initial value, and test market interest before the official listing.

Some pre-markets are also expanding their offerings, including trading protocol points, which can later be used as conditions for airdrops.

Pre-market operation in traditional markets

In the stock markets, pre-market trading is organized through electronic communication networks (ECN), which create a connection between potential participants in transactions. The trading conditions here differ from the standard ones — a different level of liquidity, excellent volatility, and specific rules for contract execution.

Prices formed during the pre-market period often serve as a benchmark for the opening price and determine the initial direction of trading throughout the day. For example, if a company publishes a report with results above expectations after the market closes, investors may begin to accumulate positions in its shares starting in the morning during the pre-market. This increase in demand potentially affects the asset's price even before the official start of trading.

Advantages of Trading During Pre-Market

Initial Asset Assessment Formation

The pre-market allows participants to assess the impact of various external factors and events on the value of instruments. Traders receive signals about potential price movements and can forecast the market direction for the main trading session.

Rapid adaptation to change

Investors can timely reassess their approaches and respond to events that occur outside of standard trading intervals. Adjusting positions before the market opens helps minimize losses associated with market turbulence.

Enhanced Accessibility for Traders

Due to longer trading windows, market participants have the opportunity to execute trades at a time that is convenient for them, regardless of the time constraints of the official schedule.

What risks does pre-market carry?

Lack of liquidity and high spreads

Pre-market trading is characterized by a smaller volume of participants and rarer transactions. This leads to wider spreads between buying and selling prices, and large orders can significantly move prices compared to standard trading hours.

Low representativeness of quotes

In the pre-market, a limited number of professional and retail traders participate, so price movements may not reflect the true conditions of the broader market and can mislead participants. Additionally, trends observed in the pre-market often change dramatically when the main trading session opens and a large number of new participants join.

Concluding Thoughts

Pre-market is an important tool in modern trading, both in the traditional sector and in the cryptocurrency industry. It provides traders with the opportunity to gain an edge through early price formation, flexibility in strategy planning, and the availability of trading at any convenient time. However, it is important to recognize that pre-market trading comes with higher risks, including reduced liquidity and potential inaccuracies in quotes. Participants should carefully assess the pre-market conditions and implement appropriate risk management measures when making trading decisions.