In the world of cryptocurrencies, premarket trading is a service that refers to the over-the-counter trading system and is designed for trading new tokens before their official listing.
With premarket trading capabilities, buyers and sellers can quote and transact at prices they’re interested in before tokens are even listed. Premarket buyers and sellers determine premarket transaction prices — they may offer a price different from the tokens after it is listed.
This type of trading is very similar to the barter procedure. Let’s say someone wanting to borrow a car came to a rental office. But it has already closed. By a favorable coincidence, another person decided to return his car and also went to the bureau after it closed. Thus, the first latecomer can borrow a car directly from the second.
However, while premarket trading may reflect market expectations, the price of a token, once listed, will depend on various factors and may not reflect the premarket price. Both prices are ultimately determined only by the market.
Why does the crypto community need premarket trading?
Premarket trading allows traders to buy or sell coins before the official launch for trading on exchanges. Sellers and buyers create orders and post quotes. All transactions are settled in Tether (USDT).
Traders can act as makers, creating orders with predetermined quotes or as takers, accepting corresponding active orders on the platform. Buyers and sellers must use assets as collateral to ensure timely settlement. After successful and timely payment, the deposit is returned. All transactions are settled in USDT.
Premarket on traditional and cryptocurrency exchanges. Difference
In a traditional market, the premarket is trading before official trading hours. It usually occurs early in the morning before the opening of stock exchanges such as the NYSE and NASDAQ.
However, since cryptocurrency markets operate non-stop, the term “premarket” has taken on a different meaning. Crypto premarkets are platforms where investors can trade tokens before they are officially launched or widely distributed.
As a rule, traders use such a premarket to speculate on the value of cryptocurrency. They will place orders based on the projected value of the tokens after launch.
Traders can interpret price movements outside regular trading hours and assess potential trends and market momentum for the upcoming trading session.
Which exchanges offer premarket trading services?
Over the past few months, several large cryptocurrency exchanges, including Binance, KuCoin, Bitget, and others, have introduced premarket trading services.
Users can gain early access to investment opportunities and start trading various tokens before their official listing. Some of the most popular projects in recent months include Notcoin (NOT) and Hamster Kombat (HMSTR).
However, exchange representatives warn that premarket trading carries significant risks, so it is essential to analyze the market carefully and be prepared for possible surprises.
What traders say
Many traders perceive premarket trading as an excellent opportunity to create orders to buy or sell tokens before listing. Traders surveyed in the crypto exchange community have different assessments of premarket trading, but they agree on the usefulness of such a tool for cryptocurrency markets.
Thus, one of the users of the Binance cryptocurrency exchange noted in conversation with crypto.news that the possibility of premarket trading opened up new trading prospects for him, although this instrument has certain risks.
“Now I can get the most popular tokens before they are officially launched on exchanges. Although I take more risks compared to regular spot trading, in the case of listing tokens, I have a better chance of making good money than those who entered the project after the official start of trading on exchanges.”
Binance trader
Another user of the KuCoin platform also notes that he has yet to understand all the advantages of premarket trading since he just invested in the new HMSTR token. At the same time, he recalled that, as a rule, the sending of tokens may be delayed in the event of a delay in listing.
“I understand that executed orders remain valid, and exchange representatives will announce a new settlement time later. However, how long I will wait to receive the tokens is still being determined. No project guarantees listing on a specific exchange, so traders always take a little risk.”
KuCoin trader
Should you try premarket trading?
When investing in a particular asset, traders must consider the risks. No matter how promising the project may seem, no one can guarantee profit or, sometimes, the safety of the invested funds.
Therefore, before choosing premarket trading, a trader should be aware of risks such as limited liquidity, considerable bid/ask spreads, and price unpredictability.
