Benefits of After-Hours Trading — Robinhood Extends Trading Time

Mohit Oberoi, CFA - Author
By

Apr. 1 2022, Published 8:53 a.m. ET

The popular retail trading app Robinhood has announced that it will let users trade between 7:00 a.m. ET and 8:00 p.m. ET. Eventually, the company intends to let users trade 24/7, just like cryptos. What are the benefits of after-hours trading and should you participate?

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U.S. stock markets open at 9:30 a.m. ET and close at 4:00 p.m. ET on weekdays, which is known as the regular market hours. However, there are two more sessions. Premarket trading opens at 4:00 a.m. ET and runs until 9:30 a.m. ET. The after-hours trading session is from 4:00 p.m. ET and 8:00 p.m. ET.

After-hours trading has certain rules and it's riskier.

In after-hours trading, you can only place a limit order and not a market order. Also, the number of participants and trading volumes are quite low, which makes it riskier. After-hours trades are completed through electronic communication networks, which happen without the involvement of an exchange.

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What are the benefits of after-hours trading?

While the stock markets open only between the regular hours, price-sensitive information like company earnings, key corporate announcements, and geopolitical developments happen pretty much throughout the day. After-hours trading enables traders to act based on the information that's released after regular trading hours.

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We often see wild price swings in stock prices during after-hours trading. At times, the price action during the regular trading on the next day isn't commensurate with that. Through after-hour trading, traders can capitalize on the post-market price action. It also helps make trading decisions on new information, which gets disseminated after the regular trading hours.

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Convenience is another key advantage of after-hours trading. For people who might not otherwise be able to trade during the regular market hours, after-hours and pre-market trading are attractive ways to participate in markets. Also, after-hours trading helps bring efficiency in markets as the news gets digested as soon as it's publicly released.

Robinhood announced new extended hours.

Previously, Robinhood let users trade between 4:00 p.m. ET to 6:00 p.m. ET in after-hours trading. Pre-market trading was even constrained and started at 9:00 a.m. ET, which is just half an hour before the regular hours.

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During Robinhood's fourth-quarter 2021 earnings call, which led to a sharp fall in its stock price, CEO Vlad Tenev said that the company is working towards allowing traders to trade beyond its extended-hours trading, in what it called “hyper-extended hours."

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Robinhood after-hours trading is a win-win.

Robinhood stock saw upwards price action after the company announced the new extended hours. The decision is a win-win for Robinhood and its customers. While the move will help Robinhood earn more revenue, traders on the platform would also get the opportunity to trade for an extended period.

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Amid its sagging stock price and slowing growth, Robinhood has been looking at new ways to increase its revenue base. It has started crypto wallets and would add more services like lending and staking. The company is also looking to add more digital assets to the platform.

Coming back to after-hours trading, some participants are pushing the SEC to allow trading in stocks for 24 hours a day to bring parity with digital assets like cryptos. Whether SEC allows traders' wishes still remains to be seen.

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