Trade the Stock Market After Hours? Is It Possible?

Investing News

The period of time in a day during which trading activity takes place is known as the trading session. For most stock markets, the main trading session takes place during the daytime, where one trading session represents a single day of business. The beginning of the session is marked by the opening bell, which signals that the market is open. Similarly, the trading day ends with the closing bell. Most trading takes place during this time of day.

But trading activity isn’t restricted to this time of day. It does, in fact, take place after the market closes—once normal business hours are done. This is known as the after-hours trading session. But there are some key differences between the normal trading day and the after-hours trading session. Read on to find out more about the after-hours session, how you can take part, and what you need to watch out for when you trade after the market closes.

Key Takeaways

  • After-hours trading takes place after the markets have closed.
  • Post-market trading usually takes place between 4:00 p.m. and 8.00 p.m., while the pre-market trading session ends at 9:30 a.m.
  • Electronic communication networks make after-hours trading possible.
  • Risks associated with after-hours trading include less liquidity, wide spreads, more competition from institutional investors, and more volatility.
  • After-hours trading allows investors to react immediately to breaking news and is much more convenient.

What’s After-Hours Trading?

What Is After-Hours Trading?

After-hours trading is the period of time after the market closes when an investor can buy and sell securities outside regular trading hours. Both the New York Stock Exchange (NYSE) and the Nasdaq normally operate between 9:30 a.m. and 4:00 p.m. Eastern Time. Trades during the after-hours session can be completed anytime between 4:00 p.m. and 8:00 p.m. Eastern Standard Time.

In these extended trading sessions, electronic communication networks (ECNs) match potential buyers and sellers without using a traditional stock exchange. The trading volume during the after-hours trading session tends to be fairly thin. That’s because there are usually very few active traders during this time period. This can change, though, with volume spiking if there’s big economic news or an unexpected new development at a company.

Traders can also expect wider spreads—the difference between the bid and ask prices—after the market closes.

Who Can Trade During the After-Hours Session?

After-hours trading was used primarily by institutional investors up until mid-1999, when the services of ECNs became more widely available to retail investors. An ECN not only allows individual investors to interact electronically, but it also lets large institutional investors interact anonymously, thereby hiding their actions.

As extended trading has become increasingly popular over the past decade, investors have embraced it. In fact, a number of brokers now offer after-hours trading, including Charles Schwab, Fidelity, and TD Ameritrade.

Make sure you read all the disclosure documents prepared by your brokerage firm before you start trading in the after-hours market.

Post-Market and Pre-Market Trading

After-hours trading can be divided into two different parts of the day. The first is the post-market trading session. Most exchanges usually operate post-market trading between 4:00 p.m. and 8:00 p.m. You can also take part in pre-market trading, which takes place the morning before the markets open—before 9:30 a.m. 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 substantial gains, but you should also be aware of some of the inherent risks and dangers that come with investing during this period of time, including:

  • Less liquidity: There are far more buyers and sellers during regular hours. During after-hours trading, there may be less trading volume for your stock, and it may be harder to convert shares to cash.
  • Wide spreads: As noted above, a lower trading volume may result in a wide spread between the bid and ask prices. Therefore, it may be hard for an individual to have his or her order executed at a favorable price.
  • Tough competition for individual investors: While individual investors now have the opportunity to trade in the after-hours market, the reality is that they must compete against large institutional investors who have access to more resources than the average individual investor.
  • Volatility: The after-hours market is thinly traded in comparison to trading that takes place during regular hours. You are thus more likely to experience severe price fluctuations in after-hours trading than trading during regular hours.

While technology can affect the regular trading day, there may be more lags and delays during after-hours trading, meaning your trades may not even go through.

Here’s an example of some of the risks associated with after-hours trading:

Assume an investor wants to sell her shares of a company – call it XYZ Co. – for $250.00 in the session after the regular markets have closed. Due to the illiquid nature of the after-hours market, the highest bid price from the sparse number of buyers is $240.00. She can either change her limit price to $240.00 to sell right away or she can keep her original price and run the risk of a partial order or a not-filled order. At the end of the trading session at 8:00 p.m., all unexecuted orders are canceled.

Benefits

After-hours trading comes with a number of risks, but there are some possible benefits, too:

  • Trading on fresh information: Being able to trade after the normal markets close allows you to react quickly to breaking news stories or fresh information before the next day’s market open.
  • Pricing opportunities: Although volatility is a risk associated with trading after hours, you may find some appealing prices during this time.
  • Convenience: Investors may prefer trading at off-peak times, and after-hours trading provides this added flexibility.

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

It really depends on a number of factors, including your risk tolerance, trading strategy, and whether you are entering or exiting a position. The typical investor might prefer to wait for the regular trading session, but an experienced trader might dabble in the after-hours market to either close a losing position or get a jump on initiating a new position. Make sure you know about the risks involved in trading after hours, and evaluate whether the benefits outweigh these risks in your specific situation.

Is it too risky to trade in the after-hours market?

Again, it depends on the investor’s personal preferences and risk tolerance. Seasoned traders find that risks such as lower volumes and wider bid-ask spreads are more than offset by the opportunity to act on new information before next day’s regular trading session, as well as the potential to trade mispriced securities.

When can you trade after hours?

Generally between 4 p.m. and 8 p.m. for most exchanges. However, the vast majority of after-hours trading takes place between 4 p.m. and 6 p.m., so be extra careful if you intend trading in the final hour or two of the after-hours trading session.

Does Robinhood allow after-hours trading?

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

Can I use a market order to trade a stock after hours?

No, a market order cannot be used in after-hours trading. Most brokerage firms only accept limit orders in after-hours trading to protect investors from unexpectedly bad prices that may result from the lower trading volumes and wider spreads during this session.

Market Hours Schedule

NYSE (Tape A)

  • Pre-opening: Monday through Friday, 6:30 a.m. ET
  • Standard trading: Monday through Friday, 9:30 a.m. to 4:00 p.m. ET

NYSE (Tapes B &C)

  • Pre-opening: Monday through Friday, 6:30 a.m. ET
  • Early trading: Monday through Friday, 7:00 a.m. ET to 9:30 a.m. ET
  • Standard trading: Monday through Friday, 9:30 a.m. to 4:00 p.m. ET

NYSE American Equities, NYSE Chicago, NYSE National

  • Pre-opening: Monday through Friday, 6:30 a.m. ET
  • Early trading: Monday through Friday, 7:00 a.m. ET to 9:30 a.m. ET
  • Standard trading: Monday through Friday, 9:30 a.m. to 4:00 p.m. ET
  • Late trading: Monday through Friday, 4:00 p.m. to 8:00 p.m. ET

NYSE Arca Equities

  • Pre-opening: Monday through Friday, 3:30 a.m. ET
  • Early trading: Monday through Friday, 4:00 a.m. ET to 9:30 a.m. ET
  • Standard trading: Monday through Friday, 9:30 a.m. to 4:00 p.m. ET
  • Late trading: Monday through Friday, 4:00 p.m. to 8:00 p.m. ET

NASDAQ Stock Exchange

  • Early trading: Monday through Friday, 4:00 a.m. to 9:30 a.m. ET
  • Standard trading: Monday through Friday, 9:30 a.m. to 4:00 p.m. ET
  • Late trading: Monday through Friday, 4:00 p.m. to 8:00 p.m. ET

U.S. Stock Exchange Holidays

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

  • New Year’s Day
  • Martin Luther King Jr. Day
  • President’s Day
  • Good Friday
  • Memorial Day
  • Independence Day
  • Labor Day
  • Thanksgiving Day
  • Christmas Day

U.S. Stock Exchange Shortened Trading Days

The U.S. stock exchanges have shortened trading days and close early on the following days:

  • Black Friday (the day after Thanksgiving): 9:30 a.m. through 1:00 p.m. ET
  • Christmas Eve: 9:30 a.m. through 1:00 p.m. ET

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