How to Trade After Hours on Robinhood

After-hours trading, also called extended-hours trading, allows investors to buy and sell stock outside of the stock market’s regular business hours. Robinhood is an online brokerage firm that offers premarket trading from 9 a.m. to 9:30 a.m. EST and aftermarket-hours trading between 4 p.m. to 6 p.m. EST. Traders use pre- and post-market periods to take advantage of earnings announcements and what is happening in foreign markets. 

Some people don’t have the ability during the day to buy or sell, and these times offer them flexibility. You can place a market order, limit order, stop order stock, good-for-day and good-till-cancel orders to get the desired prices. It allows you to buy or sell before the open and after the close.

What is After-Hours Trading?

After-hours trading is when you can trade premarket before Wall Street formally opens at 9:30 a.m. EST or after it closes at 4 p.m. EST. It occurs through electronic communications networks (ECNs). ECNs start trading at 4 a.m. until 9:30 a.m. EST and start again from 4 p.m. to 8 p.m. EST after the market closes. Each brokerage firm sets its own guidelines to trade premarket after hours.

The pricing is set from the buy and sell orders on the ECN. You will see what’s happening in real time, with larger spreads between the bid (the highest price from buyers) and ask (the lowest prices by sellers) in the last sale. You might not get the price you want, as they reflect matching the orders with available buyers or sellers on the ECN.  

Prices are not consolidated across all of the ECNs like they are with the stock exchanges. There are also lower levels of liquidity. These two factors can create pricing disparities between what you see and your execution.  

How are After-Hour Trades Completed?

After hour-trades are completed using a matching system of all buy and sell orders. The transaction is entered into the trading queue during the session. It must be matched with the available buy or sell orders to get a fill. The execution can be different with these prices changing on the release of news from the company. These disparities create a situation where the prices can change quickly. 

Why Should You Engage in After-Hours Trading?

After-hours trading allows investors to buy and sell securities outside of normal stock market hours. This is done through electronic communication networks (ECNs) that connect market participants after the trading day ends. As global markets evolve, after-hours trading can offer strategic advantages. Investors can respond to news, earnings reports, and other events that happen outside regular hours. By trading after hours, you can diversify your investment strategies and take advantage of opportunities that may not be available during typical trading times. This helps you manage your portfolio's performance in a changing market.

Extended Market Opportunities

After-hours trading lets investors respond to important news and events outside of regular trading hours. Regular market hours are from 9:30 a.m. to 4:00 p.m. Eastern Time. Significant announcements, like earnings reports, often come after the market closes. These announcements can cause stock prices to move drastically. By trading after hours, investors can act on these price changes before the market opens the next day. This can give them an edge over those who only trade during regular hours. Additionally, after-hours trading allows for responses to global events that occur when U.S. markets are closed. Political changes, economic data, and unexpected developments can affect U.S. stocks. Being able to trade during these extended hours helps investors make quick decisions and stay ahead of market trends.

Potential for Better Prices

After-hours trading can allow for better prices. This is due to different market dynamics. Trading volumes are usually lower, which can create price differences not seen during regular hours. With fewer participants, competition for shares decreases. This may lead to opportunities to buy stocks at a discount or sell at a premium. However, lower liquidity can increase price volatility. The bid-ask spread often widens after hours. This can result in bigger price swings. Savvy investors can benefit from careful timing. Caution is important, as price movements can be unpredictable. For those who can navigate these conditions, after-hours trading can provide significant advantages.

Convenience and Flexibility

After-hours trading is helpful for investors who can't trade during standard hours. This flexibility lets them manage their portfolios at their convenience, whether in the early morning or late at night. For international investors, after-hours trading helps them stay connected to U.S. markets without adjusting to U.S. time zones. It is also beneficial for long-term investors who want to adjust their positions or set up trades for the next day. This trading window gives more control over timing, which is useful for those managing diverse portfolios or trading globally. Executing trades outside regular hours helps investors seize opportunities without time constraints.

Types of After-Hours Trading Orders

After-hours trading involves buying and selling securities after regular market hours. This allows investors to respond to news and events that happen outside standard trading times. Different types of after-hours trading orders are used. Each order type has specific characteristics and purposes. Understanding these orders is important for traders. It helps them optimize strategies and manage risks when trading after hours. This overview will explore the various types of after-hours trading orders. It will highlight their functionalities, benefits, and limitations. This information aims to help investors make informed decisions in this dynamic market.

Limit Order

To place a limit order, first specify the maximum price you will pay when buying or the minimum price you will accept when selling. Set a limit price based on your trading strategy. Next, choose the trading hours for your order, such as regular market hours or extended hours. When creating a limit order, decide on its expiration type. A Good-For-Day limit order expires at the day's close if not executed. A Good-Til-Canceled order stays active until executed or canceled manually. During regular market hours, limit orders are processed as conditions allow. In extended hours, they can be affected by price movements and volatility. Understanding these key elements can help you manage your trading strategy effectively.

Stop Order

A Stop Order is a key tool for traders. It helps manage risk and execute trades automatically. Unlike Limit Orders, Stop Orders trigger a market order when a specific stop price is reached. Once the asset's price hits this stop price, the order is activated. The trade will be executed at the best available market price. You can use Stop Orders for both buying and selling assets. A buy stop order is placed above the current market price. A sell stop order is set below it. This allows traders to take advantage quickly of price changes in either direction. However, Stop Orders do not guarantee a specific execution price, especially in volatile markets, which can cause slippage. Therefore, while Stop Orders are helpful for automating trading, traders should use them carefully.

Trailing Stop Order

Trailing stop orders are useful risk management tools. They help traders lock in profits while minimizing potential losses. Unlike traditional stop orders, a trailing stop order moves with the market price. It keeps a set distance as the price rises. This adjustment lets traders make the most of upward momentum without constant monitoring. For example, if a trader sets a trailing stop order $5 below the market price, it will rise as the price increases. If the price then drops $5 from its highest point, the order triggers, securing profits. The main benefits of trailing stop orders are protecting gains and allowing for extra profits as the market rises. They work well in various trading strategies, especially in volatile or trend-following markets. Overall, trailing stop orders are essential for all traders looking to effectively manage risk.

Good-For-Day Order

A Good-for-Day Order is a trading order that stays active for the entire trading day. It is useful for managing positions effectively. The order remains in effect until it is executed at the specified price or canceled by the trader. This type of order helps traders optimize their strategies within a set time. It allows them to take advantage of price movements without carrying orders into the next day. This feature is beneficial for managing risk and limiting exposure. Overall, a Good-for-Day Order helps traders stay disciplined in volatile markets. It aligns trading strategies with immediate goals and provides flexibility throughout the day. This improves trading efficiency and risk management.

Good-Til-Cancelled Order

A Good-Til-Cancelled (GTC) order is a type of trading order that stays active until executed or cancelled. Unlike day orders, GTC orders do not expire at the end of the trading day. This gives traders flexibility to set desired price levels. GTC orders can capture favorable market conditions over time. This is useful for traders with specific strategies. It allows trades to be executed automatically when the market reaches the desired price. This saves time and reduces the risk of missing opportunities. A GTC order helps traders set their execution parameters. This enhances their ability to trade effectively.

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Are There Risks Involved?

Trading after hours does involve risks including shifting liquidity, volatility, inconsistent prices and changes for news-related events. The lower liquidity levels mean there are larger spreads between the bid and the ask prices. You might not get the price you want because of these differences. There are also times when the changing prices lead to partial fills on your order. Some stocks don’t trade after hours, limiting your access to them.

Volatility is higher with the lower volume, leading to more up and down swings. The stock price can overreact to news-related events, giving you poor executions compared to waiting for the regular trading session.

News-related events can cause the price of the stock to over- or underreact to them. You may receive worse executions, with traders becoming overly emotional before or after hours. 

Once the markets start trading, reversals can occur, leading to poor executions. These differences make trading after hours riskier compared with the regular session on the exchanges. You need to decide if these risks are worth it and be aware of the potential drawbacks they bring.

Making After-Hours Trading Work for You

After-hours trading offers numerous benefits — convenience, capitalizing on the news (such as earnings reports), changes in overseas markets, getting a better price before the open and trading without as much volatility. You can take advantage of these changes before the markets open to get better executions. The risks are shifting liquidity levels, volatility, inconsistent prices and changes for news-related events. 

You need to do your research before trading after hours to determine whether it is right for you. It’s not for everyone, and you must know how it can impact your trading strategies and executions. 

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