The secret behind the Pre-Markets scheme is to take advantage of existing market confusion to drive up the price of a trade without having to have the forethought to create a new market. The idea is that a small group of people will control the pre-marks which, given out to their friends, family members and colleagues, will allow them to trade ahead of the pack and benefit from the artificially inflated prices. This is done on the basis of trust, the belief that others will not be cheated. But the system works only for a limited time and once the trading window closes, so do the pre-marks.
So, what are pre-marks? If a trading platform offers one of these, they are an indicator of a forthcoming market move which can be used by novice traders to take advantage of price fluctuations. The most widely used indicator is the moving average convergence/Divergence, otherwise known as MACD, which gives traders an easy way of interpreting price moves through use of a line graph. Traders can plot a line through the closing price for a given period, and if there is a significant deviation from this value, this is an indicator that the price is about to change direction. The best way to use these pre-marks is to buy when the price is low, sell when it is high, but avoid getting too close to the moving average because it can cause a panic buy or sell move.
It is important to realise that there are risks involved in Pre-Markets. One of the biggest risk factors for traders using this method of hedging is the inability to exit a position quickly when the situation turns sour. However, as long as you are not sitting on a losing position, you will rarely suffer long term losses due to the pre-marks. Another risk associated with this type of strategy is that some of the participants in the network may be short-term traders who are determined to ride out the momentum of the market swing to make quick profits. If this happens, the Pre-Market trade can quickly be turned around by another short term trader who has taken advantage of the exiting prices. This is why most traders should use a mix of several different types of hedging strategies, rather than relying only on one.