How to Trade Stocks Before the Market Opens

by Carmelo Montalbano ; Updated April 19, 2017
Trade strength and short weakness

Trading stock before the opening of the exchange is best left to large institutional investors, where price and size is negotiated. However, the individual investor can take advantage of the resources by trading on one of the after-hour exchanges.

Step 1

Trade stocks after hours with caution. The important issue is that after-hour markets are "thin." This means that the bid-and-offer quotes are quoted for only 100 shares. In addition, the bid-and-offered difference is quite a bit more than during active hours. There is no requirement that any particular specialist make a market in the stock. Trading after hours can be very expensive.

Step 2

Trying to trade a stock not available for after-hours trading can sometimes be hedged by taking a position in a similar stock in the same industry. The trade can be reversed later by hedged position. Stocks in similar industries usually trade within a narrow range of each other.

Step 3

Trading in an overnight market may mean the stock you have traded does not transfer to the domestic market you wish to trade. In other words, buying IBM in London does not allow you to sell it in sell it in the U.S. market. You will have to buy in the American market when it is open and sell your position when the London market reopens. Incidentally, the same holds true of futures markets.

Step 4

Buy stocks after retrieving the bid-and-offered side and last trade from your quote machine. You will notice that the bid-and-offered are quoted widely apart. Do not trade on the quotes, but instead enter the price you would trade your stock. Often, if any size develops on the bid-and-offered side, the quotes will slide to the real level of interest.

Step 5

Be very careful leaving stops on stocks in overnight markets. Overnight raiders will use thin overnight markets to sell a few hundred shares of stock and drop the stock price several dollars. Then they will buy up the larger quantities of stock and bid the stock up to prices that existed at the start of the session. In other words, you have lost your stock to an unscrupulous but not illegal practice.


  • Do not accept after-hour quotes as reality. More often than not they represent a range where stocks can be traded. Enter a trade at a price where you are comfortable.


  • Try to avoid trading after-hours markets if possible.

About the Author

After an 18-year career on Wall Street as a trader of municipal and mortgage backed securities, Carmelo Montalbano developed a very large desktop trading application that managed more than 30 institutional portfolios. Technology and small business acquisitions continue to be his primary interest.

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