What is after-hours trading and can you trade at this time?

The period of the day during which trading activity occurs is called a trading session. For most stock markets, the main trading session occurs during the day, and a session represents a day of trading. The start of a trading session is marked by the opening bell, which signifies the market opening. Again, the trading day ends with the close. Most transactions take place at this time of day.

But trading activity is not limited to this time of day. In fact, it does happen after the market closes – once normal business hours are over. This is called the after-hours trading session. But there are some key differences between the regular trading day and the after-hours session. Read on to learn more about the after-hours session, how to get involved, and what to look out for when trading after hours.

key takeaways

  • After-hours trading occurs after the market closes.
  • After-hours trading typically runs from 4:00 p.m. to 8:00 p.m. Eastern Time (ET), while the pre-market session ends at 9:30 a.m. ET.
  • Electronic Communications Networks (ECNs) enable after-hours trading.
  • Risks associated with after-hours trading include reduced liquidity, wide spreads, increased competition from institutional investors and increased volatility.
  • After-hours trading allows investors to react immediately to breaking news and is much more convenient.

What is after-hours trading?

What is after-hours trading?

After-hours trading is the period of time after the market closes during which investors can buy and sell securities outside of normal trading hours. The New York Stock Exchange (NYSE) and Nasdaq stock markets typically operate from 9:30 a.m. to 4 p.m. Eastern Time (ET). After-hours trading can be done anytime between 4pm and 8pm ET.

During these extended trading sessions, an Electronic Communication Network (ECN) matches potential buyers and sellers without using traditional stock exchanges. Volumes tend to be fairly light in the after-hours session. This is because there are usually very few active traders during this period. However, this could change if there is major economic news or an unexpected new development in the company.

Traders can also expect the spread to widen after the market closes – the difference between the bid and ask prices.

Who can trade during the after-hours session?

After-hours trading was primarily used by institutional investors until mid-1999, ECN’s services became more widely available to retail investors. ECN not only allows individual investors to interact electronically, but also allows large institutional investors to interact anonymously, thereby concealing their actions.

As extension deals have become more popular over the past decade, investors have embraced it. In fact, many brokers now offer after-hours trading, including Schwab, Fidelity, and TD Ameritrade.

Before you start trading in the after-hours market, make sure you read all disclosure documents prepared by the brokerage firm.

Post-IPO and Pre-IPO Transactions

After-hours trading can be divided into two different parts of the day. The first is the after-hours trading session. Most exchanges typically have after-hours trading between 4pm and 8pm ET. You can also participate in pre-market trades that take place in the morning before the market opens – before 9:30AM ET. The start of the pre-market session depends on the exchange.

risks and dangers

The development of after-hours trading offers investors the possibility of earning substantial gains, but you should also be aware of some of the inherent risks and dangers that come with investing during this time. These include:

  • Reduced liquidity: There are more buyers and sellers during normal hours. During after-hours trading, your shares may trade less and it may be more difficult to convert your shares into cash.
  • Wide spreads: As mentioned above, lower trading volumes can result in wide spreads between the bid and ask prices. Therefore, it may be difficult for individuals to execute orders at favorable prices.
  • Intense competition from individual investors: While individual investors now have the opportunity to trade in the after-hours market, the reality is that they must compete with larger institutional investors who have access to more resources than the average individual investor.
  • Volatility: Trading in the after-hours market was light compared to normal hours. You are more likely to experience sharp price swings in after-hours trading than during normal trading hours.

While technology may affect regular trading days, there may be more lags and delays during after-hours trading, meaning your trades may not even be completed.

The following are examples of some of the risks associated with after-hours trading:

Suppose an investor wants to sell her stock in a company (called Company XYZ) for $250 after the regular market closes. Due to illiquidity in the after-hours market, a small number of buyers placed the highest bid at $240. She can change the limit price to $240 to sell immediately, or she can keep the original price and take the risk of a partial or unfulfilled order. At the end of the trading session at 8pm, all outstanding orders are cancelled.

benefit

After-hours trading has many risks, but also some possible benefits:

  • Trade on new information: The ability to trade after the normal market close allows you to react quickly to breaking news or new information before the market opens the next day.
  • Pricing Opportunities: While volatility is a risk associated with after-hours trading, you may find some attractive prices during this time.
  • Convenience: Investors may prefer to trade during off-peak hours, and after-hours trading provides this additional flexibility.

common problem

Should I trade after hours or wait for regular trading hours?

It really depends on many factors, including your risk tolerance, trading strategy and whether you are entering or exiting a position. The typical investor may prefer to wait for regular trading hours, but experienced traders may step into the after-hours market to close out losing positions or start new ones. Make sure you understand the risks involved in trading after hours and assess whether the benefits outweigh those risks in your specific situation.

Is it too risky to trade after hours?

Again, it depends on the investor’s personal preference and risk tolerance. Experienced traders have found that risks such as reduced volumes and widening bid-ask spreads are offset by the opportunity to act on new information before the next day’s regular trading session and the possibility of trading mispriced securities.

When can I trade after hours?

Most exchanges are usually 4pm to 8pm. However, the vast majority of after-hours trading occurs between 4pm and 6pm, so be careful if you plan to trade during the last hour or two of the after-hours session.

Does Robinhood allow after-hours trading?

Yes, Robinhood allows after-hours trading on its platform.

Can I use market orders to trade stocks after hours?

No, market orders cannot be used for after-hours trading. Most brokerages only accept limit orders in after-hours trading to protect investors from unexpected bad prices that could result from reduced volumes and widening spreads during the session.

market timing

NYSE (tape A)

  • Before Market: Monday-Friday, 6:30 a.m. ET
  • Standard Trading: Monday-Friday, 9:30AM-4PM ET

NYSE (tapes B and C)

  • Before Market: Monday-Friday, 6:30 a.m. ET
  • Morning Trading: Monday-Friday, 7:00 a.m. to 9:30 a.m. ET
  • Standard Trading: Monday-Friday, 9:30AM-4PM ET

NYSE American Equities, NYSE Chicago, NYSE National

  • Before Market: Monday-Friday, 6:30 a.m. ET
  • Morning Trading: Monday-Friday, 7:00 a.m. to 9:30 a.m. ET
  • Standard Trading: Monday-Friday, 9:30AM-4PM ET
  • Evening Trading: Monday-Friday, 4pm-8pm ET

NYSE AKA stock

  • Before Market: Monday-Friday, 3:30 a.m. ET
  • Morning Trading: Monday through Friday, 4 a.m. to 9:30 a.m. ET
  • Standard Trading: Monday-Friday, 9:30AM-4PM ET
  • Evening Trading: Monday-Friday, 4pm-8pm ET

Nasdaq Stock Exchange

  • Morning Trading: Monday through Friday, 4 a.m. to 9:30 a.m. ET
  • Standard Trading: Monday-Friday, 9:30AM-4PM ET
  • Evening Trading: Monday-Friday, 4pm-8pm ET

American Stock Exchange Holidays

U.S. markets are closed for the following days:

  • New Year
  • Martin Luther King Jr. Day
  • President’s Day
  • good friday
  • Memorial Day
  • independence Day
  • labor day
  • Thanksgiving
  • Christmas

American Stock Exchange shortens trading day

The American Stock Exchange has shortened the trading day and closed early on the following days:

  • Black Friday (the day after Thanksgiving): 9:30 a.m. to 1 p.m. ET
  • Christmas Eve: 9:30 a.m. to 1 p.m. ET
READ ALSO:   Consultant: The best way to find the first customers
Share your love