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After-hours trading is the time window after the regular stock market closes. During this session, investors are allowed to trade securities via Electronic Communication Networks (ECNs). Both NASDAQ and New York Stock Exchange (NYSE) operate a regular market session running from 9:30 a.m. to 4:00 p.m. (Eastern Time). For these two renowned exchanges, the after-hours trading session begins at 4:00 p.m. and ends at 8:00 p.m.
How the After-Hours Trading Session Operates
Most novice traders often tend to overlook pre-market and post-market trading sessions. This is largely because the exchange goes live at 9:30 a.m. and is back to sleep mode at 4:00 p.m. (the regular trading hours).
The first trade recorded in the regular session is termed the stock's opening price, and the last trade is its closing price. However, trading can still happen beyond regular hours.
Pre-market and post-market trading is not a new concept in the financial markets industry. It's been around for a while but only as a reserve for institutional investors and the wealthy. The invention of ECNs in the 90s marked the end of a discriminatory stock trading practice.
ECNs are designed to offer regular traders access to after-hours trading sessions. Members of the Financial Industry Regulatory Authority (FINRA) can enter quotations during after-hours trading. However, they are subject to compliance with all relevant limit order protection and display rules (the SEC Order Handling Rules and the Manning Rules.
The after-hours stock trading market operates in a similar fashion as the regular stock trading market. In both markets, shares are traded between investors at an agreed-upon price. In other terms, the price you will receive during regular hours is the price traders on the pre and after-markets are willing to pay.
Pre-Market Stock Trading Markets
Pre-market trading occurs before the regular trading session commences. Pre-market often begin at 4:00 a.m. all through to 9:30 p.m. ET.
Investors frequent this market for the same reasons that they participate in post-market or after-hours trading sessions. They want to gain some competitive edge against the competition by making quick reactions to the news that unroll past regular trading hours.
Reasons To Trade the After-Hours Stocks Market
Earnings Announcements
When a company that you hold shares in decides to announce its quarterly earnings after the closure of the regular trading session, you want ready access to your stock for effective decision implementation.
Depending on the event's outcome, the price of the stock in question can sway significantly from the closing price recorded at the closure of the regular session. After-hours trading sessions allow you an opportunity to take advantage of these opportunities as they pop up.
Action in Foreign Markets
Foreign stock markets such as European and Asian markets can significantly influence stock prices on the U.S. market. However, activity in these markets occurs outside the U.S. regular trading hours.
After-hours trading sessions allow you and other investors a chance to seize potential opportunities presented by these activities.
Types of Orders Supported During After-Hours Sessions
Market Orders
Orders placed during regular trading hours can remain pending during the remaining portion of the market hours. On the other hand, orders placed during after-hours sessions are only valid within the stipulated timeframe.
Placing an order past market hours will leave it pending till the reopening of the regular market the following day.
Market buy orders are automatically converted into limit orders with a 5% collar. The collar serves as a cushion against extreme upward price movement. The system converts sell orders to limit orders with a 5% collar to cushion against the high volatility of extended markets.
Pro Tip: Not all stocks will support market orders executed during after-hour trading sessions. With these stocks, placing a quotation order past market hours will only add it on queue for the next day's regular trading market.
Limit Orders
You can still choose to make all your limit orders valid through all market hours (both regular and extended). Alternatively, you can also choose to have it only valid during regular market hours.
The Software will match your order to an equivalent stock on the market before executing the trade.
Stop Orders
The stop orders function is not available during extended-hours trading sessions. Stop-loss or stop-limit orders placed during after-hour trading are queued for the following regular market session.
Trailing Stop Orders
Like, stop orders, trailing stop orders are also not available during extended hours. Any trailing stop order placed during the after-hours trading session is queued for the following regular session.
FAQs
What is After-Hours Trading?
After-hours trading is the time window after the regular stock market closes.
How Does After-Hours Trading Work?
After-hours trading is carried out using the EСN technology. It allows сlients and institutions to trade with each other on a single electronic network when the market is closed.
What Time is the After-Hours Trading?
The after-hours trading session begins at 4:00 p.m. and ends at 8:00 p.m.
What Time is the Post-Market Trading?
The post-market trading session begins from 8:00 p.m. to 4:00 a.m.
Trading involves the act of buying and selling financial assets like stocks, currencies, or commodities with the intention of profiting from market price fluctuations. Traders employ various strategies, analysis techniques, and risk management practices to make informed decisions and optimize their chances of success in the financial markets.
A limit order is a type of order used in trading where an investor specifies a particular price at which they want to buy or sell a financial asset. The order will only be executed if the market price reaches or exceeds the specified limit price, ensuring that the trader gets the desired price or better when the trade is executed.
An investor is an individual, who invests money in an asset with the expectation that its value would appreciate in the future. The asset can be anything, including a bond, debenture, mutual fund, equity, gold, silver, exchange-traded funds (ETFs), and real-estate property.
A Trailing Stop Order is a type of order that automatically adjusts the stop-loss level as the market price moves in a favorable direction, helping to protect profits.
Alamin Morshed is a contributor at Traders Union. He specializes in writing articles for businesses who want to improve their Google search rankings to compete with their competition.
Olga Shendetskaya has been a part of the Traders Union team as an author, editor and proofreader since 2017. Since 2020, Shendetskaya has been the assistant chief editor of the website of Traders Union, an international association of traders. She has over 10 years of experience of working with economic and financial texts. In the period of 2017-2020, Olga has worked as a journalist and editor of laftNews news agency, economic and financial news sections. At the moment, Olga is a part of the team of top industry experts involved in creation of educational articles in finance and investment, overseeing their writing and publication on the Traders Union website.
Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO).
