From the reading, in all two cases, this trader could make the profitable trades only because he owned the stocks( OR may be he used
the stock of his firm inventory). For individual trader like us it is
out of luck if we do not have stock on hand. ( Am I correct ??)
Actually, the individual trader could simply short the stock, assuming the stock is on your brokers short list. Then the short position could be covered after the open, hopefully at a profit.
Like to have your comments on this article since it gives the reader an impression of how easy it is to make that kind of profit.
thanks
Not surprisingly, it is much not nearly as easy to make profits premarket as you might have read. There are several major problems with premarket trading. The biggest problem is liquidity. During the trading day, most stocks trade with a bid/ask spread of perhaps 1/16 to 1/4 point. However, during premarket trading, you have to ignore all quotes that are not ECNs. The premarket spread for the ECNs could easily by 2-4 points or more. Sometimes there may be an ECN bid in a stock, and no ECN ask at all, anywhere. In short, you may have difficultly finding a buyer at a 'fair' price when you want to get out of a stock.
The second problem is stock direction. The WSJ article makes it sound easy. However, just when you short that vastly overpriced stock at 25, the price may go up further, and further and further. Nothing is easy in daytrading. If it sounds easy, the writer probably doesn't have a clue about what they are talking about.
Finally, I can tell you from watching premarket trading that the scenario written about in the WSJ doesn't happen very often. Perhaps once every few weeks. Not a good way to pay the mortgage.
-Eric |
