Pre-market trading in Cryptocurrency explain

The term pre-market trading is primarily used in stock trading in the stock exchange market, and the platform is made available by brokers in those markets. For Cryptocurrency, pre-market trading is done by centralized exchanges (CEX) and is a medium used to sell tokens before they are listed. In this article, let's dive into this term in more detail.

1. What's Pre market trading

In Cryptocurrency, pre-market is the trading of a token through an over-the-counter market platform, which allows traders to order a token before they are listed in the Exchange. It gives opportunities for individuals who have the token but are not willing to wait till the listing date to sell their token before the listing.

Here, the seller sets his/her price and the quantity available for sale. The buyers interested make payment after indicating interest to buy them. Therefore, providing income to the seller before the actual listing date. At the date of listing, the seller will make his token shares available to the buyer for a claim.

When trading a token over the counter market platform in a CEX, collateral is submitted by the seller. This serves as a security for the buyer if the seller fails to make the token available on the listing date. A good example of pre-market trading of Cryptocurrency is $DOGS which listed its meme coin today in various Exchanges. 

During the pre-market, sellers place their prices and the number of token shares. Therefore, at the listing today, they make the shares available to their buyers. Any individuals who fail to make it available at the date of listing will lose the collateral that was pledged. Trading at pre-market has its benefits and disadvantages. Crypto analysts also use the price to predict the listing price of the token.

2. Benefits of premarket trading to the seller

2.1 Access to funds: 

The primary benefit of pre-market trading to the seller is that it allows them to get the funds of their token before the listing event day. 

2.2 Bird in hand: 

As it is said, the dollar in hand now is better than the one you haven't seen. So, trading during this period saves the seller from the shackles of inflation.

2.3 Funding of project: 

Some projects in some crypto ecosystems use pre-market as a medium of raising funds. Instead of relying on investors to fund them.

2.4 Price crashes: 

If the price for the pre-market becomes higher than that of the actual listing, it is a triple benefit to the seller. That is, he or she has used the opportunity to get funds, beat inflation, and sell at a higher price than that of the market price.

3. Benefits of pre-market trading to the buyer

The main benefit of pre-market trading to the buyer is that it gives him or her the opportunity to get access to the token before the listing date. And if the pre-market price is lower than the listing price. The buyer can sell and earn profit from the difference.

4. Disadvantages of pre-market cryptocurrencies trading

4.1 Longer period to listing date: 

Those who buy at this period may have to wait for months before they can get their portion of the token. For example, in the Hamster Kombat project on the Telegram tApp, buyers at the premarket stage are waiting longer than they should. At least they have waited for two months and the listing is not yet done as at the time of writing this article.

4.2 Price prediction: 

Buyers during the premarket periods do so with the hope that the price of the token will rise and they will sell and make a good profit from it. However, this might not happen. They may end up holding their shoes or selling at a loss. 

For sellers, if the listing price is higher than The premarket, they may regret selling at that period and would only wish to wait for the token generation event.

4.3 Not enough funding: 

Project owners that use pre-market to raise funds may not get enough funds from it to carry out the project successfully. 

4.4 System breakdown: 

It is possible that at the listing date, the Exchange couldn't make the shares of the seller available to them. Therefore, the seller might lose its collateral. More so, the computer system used by the seller might be bad at the listing date. Therefore, they may likely be unable to transfer their shares to the buyer at that date.