Did you know that some of the most critical market moves happen outside of regular stock market hours? From overnight trade wars to breaking news on a drug that will cure cancer, stuff goes down outside of the 9:30 a.m to 4:00 p.m trading session.
Maybe it’s Stocktwits going wild on the news, alerts going off in your pre-market scanner, rumors a company is not going to meet earnings.
“Somebody knows something, and it’s your job to find out what that something is.”
Traders can capitalize on stocks moving after hours.
Table of Contents
Stock Market Trading Hours Explained
- On the NYSE and Nasdaq exchanges after-hours trading takes place in two sessions
- Post-market trading is between 4:00 p.m. and 8:00 p.m
- Opening time of the pre-market trading session varies, but it ends at 9:30 a.m
- Electronic communication networks allow after-hours trading possible
- Risks from after-hours trading include low volume, low liquidity, high volatility, high bid-ask spreads and competition from institutional investors
- After-hours trading is convenient for those who can’t trade the “normal” stock market hours
What Is After Hours Trading?
After-hours trading is trading securities outside of regular “business” hours. If your an investor trading on the New York Stock Exchange (NYSE) and the Nasdaq, typically you trade during normal operating hours.
Trading after hours would be anytime between 4:00 p.m and 8:00 p.m. Eastern Time. Which in essence, is stock market hours. But the trading is divided into two different parts; the post and pre-market periods. Firstly, post-market trading – which most exchanges usually operate, is between 4:00 p.m. and 8:00 p.m.
Alternatively, pre-market trading, happens in the morning sometime before 9:30 a.m. Granted, this depends on the exchange. Some brokers like Webull will let you trade at the butt crack hour of 4 am. Futures trading opens on Sunday’s at 6:00 pm est.
Who can Trade Then?
Typically up until the 1990s, after-hours trading was primarily by institutional investors. And what changed in the 90s (besides VCR’s not being a thing anymore)? The introduction of ECNs!
Electronic communication networks (ECNs) allow after-hours trading; they match prospective buyers and sellers without using a traditional stock exchange. The arrival of electronic markets has made trading outside market hours accessible to retail traders like you and I and investors. In my opinion, ECNs leveled the playing field.
It not only allows people like you and me to interact electronically – we don’t need to go to the pit. But, it will enable large institutional investors anonymity – they can hide their actions.
What Brokers Offer After-Hours Trading?
In light of the popularity of extended stock market hours, brokers responded in kind. In fact, many now offer after-hours trading.
A few that come to mind include Charles Schwab, Fidelity, Webull, Robinhood and TD Ameritrade to name a few.
They all have different hours, so you’ll need to do some additional research as these companies to change their hours from time to time.
For example, Robinhood has after hours trading but it isn’t the best. Robinhood’s extended hours trading is 9:00 am to 6:00 pm Eastern.
Does the early bird get the worm? In some cases, yes, yes they do. So if you’re an early bird here’s some good news to capitalize on with fun stock market hours:
- New News. It’s surprising what can happen overnight. Considering the markets overseas open before we wake up, we are guaranteed some excitement upon waking. Whether it’s breaking news from China or Europe, the effect on the market won’t be unnoticed. Personally, one of my strategies, the premarket gap and crap, is based on this. Typically if a stock is soaring in the pre-market – usually due to some news, traders long will want to liquidate their positions for profit. And I wait. The idea is to short into the reversal once this sell off happens.
- Pricing Opportunities. In some instances, you might be able to find reasonable prices in the after-hours. Keep in mind high volatility is a risk – see below, but you may be able to get a bargain.
- Convenience. Depending on your schedule, you might not be able to watch the markets during the day. This is especially true if you work a Monday to Friday, from 9 a.m. to 5 p.m. gig with a helicopter boss. I’m pretty sure they aren’t going to appreciate you trying to place trades from your desk.
Risks & Dangers
Despite these advantages, it’s essential you are aware of the risks and dangers of after hours trading stock market hours:
- Low Volume. With fewer buyers and sellers, it may be hard to exit positions quickly. In other words, these stocks lack liquidity. You might be left bag holding with no-one to buy your shares. In other words, not a good position to find yourself in.
- Wide Bid-Ask Spreads. Another less than ideal situation. Due to low volume and liquidity, it’s hard to get executed at the price you want. As a buyer and seller, you want to get the best price for a stock. But with limited buyers and sellers after-hours, it’s difficult for brokers to match up the parties. For that extra work, you pay a premium. My suggestion is to stick with stocks with a $0.05 bid/ask spread difference.
- High Volatility. Once again, a dangerous situation to be in. With low volume, wide bid-ask spreads, you are likely to encounter extreme price fluctuations. Thus a trade can quickly go against you when a trend rapidly reverses. Since you can’t immediately exit, you are once again bag holding.
- Competition. I hate to rain on your parade but, the reality of after-hours trading is you’re competing with the big boys. In other words, large individual investors who, have access to bottomless pits of capital are playing here. The average Joe is up against the stiff competition in this arena.
Say I want to sell my Apple shares for $250.00 once the market has closed. Because of the highly illiquid nature of the after-hours market, the highest bid price I can get from the sparse number of buyers is $240.00.
What am I to do? Well, I can either change my limit price to $240.00 to sell immediately. Or, I can hold out and keep my original price of $250.
But I also run the risk of a partial order or a not-filled order. Further to that, come 8:00 p.m. the trading session ends and all unexecuted orders are cancelled. As tempting as it may be to rush in an start trading after-hours, it’s essential to set yourself up correctly first. With the right training and education, you can learn to trade in any market.