The term after-hours stock trading refers to the exchange of shares on a market between the hours of 4:01 p.m. and 8:00 p.m. Eastern Time. After-hours trades include the buying and selling of shares at an agreed-upon price, just like the trades that occur during normal market hours.
After-hours trading is one of two forms of extended-hours trading, the other being pre-market trading. The development of electronic communication networks (ECN) meant investors no longer relied on manual intervention to trade stocks. ECNs allowed buyers and sellers to interact via electronic means both during regular trading hours as well as during extended hours.
Extended Hours Trading Explained
Trading outside the regular working hours of a stock exchange can happen right after the market closes and before it opens on the following day. Depending on when exactly the trading occurs, it can be referred to as:
After hours trading session, which occurs between 4.01 p.m and 8.00 p.m. (Eastern Time), or in the hours after the current market day closes
Premarket trading session, which occurs between 4:00 a.m. and 9.29 a.m. (Eastern Time), or in the hours before the new market day opens
Trading within any of these two timeframes is referred to as extended-hours trading.
Please note that not all ECNs make trading available during the entirety of the extended hours explained above. For example, with Wells Fargo, traders can’t trade during premarket hours, and during the after-hours, they can place orders between 4:01 p.m. and 6:30 p.m. (Eastern Time).
Trading Schedule
Here’s a schedule of normal, premarket, and after-hours trading times:
4.00 a.m. – Premarket hours start
9:29 a.m. – Premarket hours end
9:30 a.m. – Regular market hours start
4:00 p.m. – Regular market hours end
4:01 p.m. – After hours trading starts
8:00 p.m. – After hours session ends
Keep in mind that the time stamps in the schedule above are in Eastern Time.
Standard vs After-Hours Trading
Standard Trading Hours | After-Hours Trading | |
|---|---|---|
Timing | Typically, 9:30 a.m. to 4:00 p.m. (Eastern Time) | Usually starts at 4:01 p.m. and ends at 8:00 p.m. (Eastern Time), but may vary depending on the platform |
Trading Location | Trading takes place on the primary stock exchange where the security is listed | Trading usually occurs on electronic communication networks (ECNs) |
Tradeable Securities | A diverse range of securities, including stocks, options, bonds, mutual funds, and ETFs | Most listed securities and those traded on Nasdaq are available, but the availability of other securities may be limited |
Liquidity | Higher liquidity as more market participants, including institutional investors, are actively trading | Lower liquidity compared to standard hours, as fewer traders are active during this time |
Price Volatility | Prices are generally more stable due to higher trading volume and participation | Prices can experience larger swings due to lower liquidity and limited number of trades |
Order Types | Most order types are available, including market orders, limit orders, stop orders, and others | Typically, only limit orders and market orders are accepted |
Order Size | No specific limitations on order size during standard hours. | Some platforms may impose a maximum order size, such as a limit of 25,000 shares |
Order Fill Probability | Higher chances of order fill during standard hours due to higher liquidity and trading activity | Lower chances of order fill during after-hours trading due to lower liquidity and reduced participation |
Order Carryover | Orders can carry over to subsequent trading sessions if conditions are met | Orders normally expire in the same trading session they are placed and do not carry over to subsequent sessions |
After-Hours Trading Pros & Cons
- Allows traders to immediately react to breaking news
- Gives traders with busy days a chance to enter the market
- High volatility can be an opportunity for some traders
- Potentially lower levels of market noise and distractions
- Lower liquidity and reduced trading volume
- Increased price volatility and wider bid-ask spreads
- Potential for limited execution options and order types
- Imposes traders to additional restrictions from their brokerage firms
After-Hours Trading Considerations
There are a number of reasons traders may want to engage in trading outside the regular hours of a market day:
They may be forced to do it because of their busy schedules;
Some traders may prefer trading in market conditions with fewer participants;
Other traders may want to adjust their positions based on news of recent events after the stock exchange's closing;
Many traders use the after-hours market to close their position before leaving on a vacation.
Whatever their motivation may be, to achieve the best results, traders have to keep the following considerations in mind when trading in the after-hours market.
Limited Number of Participants
The after-hours market typically has a more limited number of market participants compared to regular market hours.
This limited participation can impact the depth of the market, meaning there may be fewer available buyers and sellers.
As a result, bid-ask spreads, which represent the difference between the price at which buyers are willing to buy, and sellers are willing to sell, can be wider during after-hours trading.
Lower Trading Volume
In addition to wider bid-ask spreads, the limited number of market participants also means that the number of trades taking place during after-hours is often lower.
When significant news that may have an impact is released, the market may remain busy for the first couple of hours, but the trading volume typically considerably slows down around 6:00 p.m.
This lower volume translates into reduced liquidity in the after-hours market, which can make executing trades more challenging than usual.
Higher Price Volatility
The combination of lower volume and liquidity during the after-hours market can often lead to increased price volatility.
Due to the reduced number of participants, large buy or sell orders can have a more significant impact on prices, resulting in higher price swings compared to regular market hours.
For this reason, price discovery in the after-hours market may not accurately reflect the true market value, as trading activity is limited.
Brokerage Limitations
Not all brokerages offer access to after-hours trading, and those that do may have specific requirements or restrictions which traders need to be aware of.
As mentioned in the example of Wells Fargo above, different brokerage firms allow after-hours trading within various timeframes. It’s up to the trader to find a brokerage that will allow them to trade in the hours they want.
Also, brokerages may place certain limitations on the types of securities that can be traded during extended hours. For example, complex products, such as options or specific types of securities, may not be available for trading outside regular market hours.
Moreover, brokerage platforms may have specific order types and size limitations during after-hours trading.
Some brokerages don’t allow the placing of stop, stop-limit, fill-or-kill, and other order types, so traders must understand the specific rules and limitations imposed by their brokerage before engaging in after-hours trading.
FAQ
Who is allowed to trade after hours?
Is after-hours trading risky?
What is the safest time to trade?
- The term regular trading hours refers to the standard stock exchange hours of operation, which are between 9:30 a.m. and 4:00 p.m. Eastern Standard Time. While investors can also trade in the after-hours market and pre-market, the largest numbers of shares are exchanged during normal hours.
Moneyzine EditorSeptember 21st, 2023 - Trading has never been easier, thanks to the rise of online platforms that enable you to buy and sell various assets at the click of a button. But with so many options available, it can be challenging to decide which platform is right for you.
Idil WoodallDecember 15th, 2023 - The term pre-market stock trading refers to the exchange of shares on a market between the hours of 8:00 a.m. and 9:28 a.m. Eastern Standard Time. Pre-market trades include the buying and selling of shares at an agreed upon price, just like the trades that occur during regular market hours.Moneyzine EditorSeptember 21st, 2023
