If you've ever traded on the public market or dabbled in an online brokerage firm, you know that market hours are 9:30–4:00 p.m. EST. This is when most of the transactions take place on the stock market. However, that's not the only time you can do your trading. After-hours trading, also known as extended hours trading, is also available.
How long is after-hours trading?
After hours trading benefiting my small account positions. Yay!— Tom (@RedOwlTrades) November 10, 2020
When we talk about periods of time during which trading occurs, we're talking about trading sessions. One of those trading sessions takes place after the closing bell each day, and that's after-hours trading. This trading session spans four hours after the market closes.
When does after-hours trading end?
After-hours trading typically refers to the hours of 4–8:00 p.m. EST each business day. Of course, overnight trading also occurs. The remaining hours of the night through 9:30 a.m. the following business day are lumped into the pre-market trading session.
How does after-hours trading work?
After-hours transactions mostly take place through something called an electronic communication network (ECN). The ECNs match buyers and sellers together during after-market hours, without relying on the traditional stock exchange.
On a normal evening, trading volume (or the number of trades that occur during the time period) is lower than it was during market hours. However, breaking news and other timely issues can cause spikes in after-hours trading for any particular security.
Until 1999, ECNs were largely the focus of institutional investors. However, the general public now also uses ECNs to make after-hours trades, ever since ECNs made their services more widespread.
Risks and benefits associated with after-hours trading
Investing in the stock market is inherently risky. Without risk, no one would reap big gains (or, for that matter, suffer big losses). However, after-hours trading typically increases that risk. The main concerns for individual investors include:
- Increased volatility due to slimmer trading volumes (this means much bigger swings, in both directions)
- Decreased ability to cash out (or lower liquidity)
- Your brokerage may not be able to complete the order at your preferred ask price due to the large fluctuations
- Increased competition for individual investors, who are largely competing against big-time institutional investors in the after hours
With all that in mind, there is a time and place for after-hours trading. If fresh news comes out and you want to jump on the transaction before everyone wakes up, after-hours trading is a good chance to do so. Meanwhile, you may be able to hit the lows during volatility, which can lead to hearty returns.
After-hours market movers to know about
After-hours winners and losers change with the tides. As of Tuesday, Nov. 10, the biggest after-hours market movers are: