Futures, Post and Pre-Market Prices

Question

The following picture shows the price of the FB stock on 1/7/2020 and 1/8/2020:

1/7/2020 Close: 212.60 USD

1/7/2020 After Market: 208.90 USD

1/8/2020 Pre-Market: 212.76 USD

1. Did the price jump from 208.90 to 212.76 between 8:00 PM yesterday and 5:46 AM today happen through the buying of more shares in stock exchanges around the world?
2. Is the stock price that a day starts with carried from the pre-market price? In the following example, the price of FB would be 212.76 at 9:30 AM when the market opens in the US?
3. Do the DOW and NASDAQ future prices of stocks follow the trend of the pre-market carry the closing price of after-market from yesterday?

Answer 1

1. Sort of. Trading outside of regular market hours happens in a number of exchanges, including electronic exchanges and the main exchanges (NASDQ has after-hours trading from 4PM-8PM and premarket trading from 4AM-9:30AM, for example). Since ECN networks are electronic, it doesn't really make all that much sense to classify them as "around the world" as opposed to "within the US" since one's physical location is not that relevant.

2. Not exactly. The NASDAQ opening price is determined by an auction mechanism known as the "opening cross" that is based on orders submitted pre-market that are marked to trade during the open auction. Between 9:28 and 9:30, NASDAQ publishes a reference price and other useful auction information about the pre-orders it has to allow last-second submissions, then at 9:30 all those pre-orders execute and the resulting equilibrium price is the official open price. The auction price is not mechanically linked to after-hours trading in any way I'm aware of.

3. No. Futures trade 24 hours a day separate from equity markets. The price at which futures trade depends on supply and demand in that market, which, in turn, reflects expectations about the ultimate price at contract expiration. Futures and stock prices are not mechanically related except at expiration. Of course, as long as there is easy opportunity to trade in both markets, arbitrageurs will keep these two prices reasonably close to each other. Since after-hours trading is not exactly liquid and short selling in those equity markets is even more difficult, the tracking is not always great during these times. When they disagree, futures markets are likely to be more reliable as they have much better liquidity.

Answer 2

• Did the price jump from 208.90 to 212.76 between 8:00 PM yesterday and 5:46 AM today happen through the buying of more shares in stock exchanges around the world?

The first trade in the pre-market was at 4 AM at $211.26 and FB closed the pre-market session just over $213. The price rose because traders bought shares here. You'd have to check the overnight news to see if you could discern what motivated them to buy. It could also be as simple as the market was up today so FB was up as well.

• Is the stock price that a day starts with carried from the pre-market price? In the following example, the price of FB would be 212.76 at 9:30 AM when the market opens in the US?

Regular hours trading is what is reported at the end of the day. Yesterday FB closed at $213.06. It opened today at $213 and the reported range for the day was $212.61 to $216.24. That H-L range did not include pre-market trading.