What is After Hours Trading?

One of the curious oddities in our modern society is the regular trading session hours of the stock market. Most trading activity on the stock market occurs from 9:30 a.m. to 4 p.m. EST. This makes active participation in the equities sector cumbersome for those who live near the west coast, where the regular trading session shuts down right after the lunch break.

However, with after-hours trading, all investors have the option of taking their game into overtime. Naturally, this opens many opportunities, but you should also be aware of the risks.

How Does After Hours Stock Trading Work?

As the name implies, after-hours trading is an extended session that occurs beyond the confines of normal trading hours. In some cases, trading on particular securities can last until 8 p.m. EST. This extra time affords participants the ability to trade shares on major developments that happen outside the regular schedule.

Moreover, after-hours trading may also broadly refer to premarket sessions, which are trades that happen before the opening bell at 9:30 a.m. Advanced traders may use this time if they’re wagering on US-listed international stocks, where breaking news could materialize at “unusual” hours.

After Hours Trading Schedules

For many years, investors of all stripes could only participate during normal session hours. Since 1985, those hours were the familiar 9:30 a.m. to 4 p.m., Monday through Friday, for both the NYSE and Nasdaq. However, in June 1991, the NYSE opened extended trading for institutional investors, where they could trade until 5:15 p.m. EST.

Primarily, the motivation for opening the trading floor was to respond to global demand. During this period, the concept of a globalized economy began. Additionally, international equities markets in London and Tokyo offered more hours of trading, making them attractive for well-heeled investors.

Each exchange has slightly different rules regarding their non-regular hours, which you can find below.

NYSE

• Premarket trading hours: 7 a.m. to 9:30 a.m. EST

NYSE American, NYSE Chicago, NYSE National

• Premarket trading hours: 7 a.m. to 9:30 a.m. EST
• Extended-session trading hours: 4 p.m. to 8 p.m. EST

NYSE Arca

• Premarket trading hours: 4 a.m. to 9:30 a.m. EST
• Extended-session trading hours: 4 p.m. to 8 p.m. EST

Nasdaq

• Premarket trading hours: 4 a.m. to 9:30 a.m. EST
• Extended-session trading hours: 4 p.m. to 8 p.m. EST

Observed Holidays

Below is a list of holidays that equity exchanges observe.

• New Year’s Day
• Martin Luther King, Jr. Day
• Washington’s Birthday
• Good Friday
• Memorial Day
• Independence Day
• Labor Day
• Thanksgiving Day
• Christmas Day

Finally, please note that Black Friday and Christmas Eve feature shortened hours, from 9:30 a.m. to 1 p.m. EST.

Who is Eligible to Trade After Hours?

When the NYSE initially launched after-hours trading, only institutional investors — organizations that invest on behalf of others, such as mutual funds and insurance companies — enjoyed this expanded opportunity. However, the rise of technology has evened the playing field, so much so that regular retail investors can now participate in these extended sessions.

The mechanism that makes after-hours trading possible is the electronic communication network or ECN. To provide quick background information, regular sessions feature market makers that act as intermediaries between buyers and sellers. In contrast, ECNs get rid of the intermediary altogether, allowing buyers and sellers to trade directly with each other.

While this sounds more efficient, everything has its advantages and disadvantages. Mainly, retail investors who take their first steps in the extended sessions quickly find out why market makers are so important to proper and orderly trading.

Also, while anyone is technically eligible to trade after hours, each ECN has its own set of rules. As well, brokerages that offer extended session access have their own guidelines and restrictions. Therefore, trading after dark isn’t as easy as it might sound. You really must perform your due diligence.

Finally, you might consider following this adage: Just because you can doesn’t mean you should. Benzinga covered an interesting case involving social media firm Twitter (NYSE: TWTR) in an article entitled, “The After-Hours Twitter Trades That Preceded Friday’s Plunge.”

In short, the trades that you see on ECNs can be differing from the activity during regular sessions. So yes, you can make money exploiting strange dynamics — but unless you are well-versed in trading protocols, you are more likely to be taken advantage of.

Brokerage Account

To trade after hours, you need an active brokerage account. Choose a brokerage that explicitly offers access to extended trading hours. Not all brokerages provide this option. Your account type, such as cash or margin accounts, can affect your ability to trade after hours. Margin accounts usually allow for greater flexibility and can support more transactions during extended hours.

Trading Experience

Many brokerage firms have requirements for traders who want to access after-hours trading. This often includes needing a certain amount of trading experience. Traders may need to execute a specified number of trades in the regular market or maintain a specific account type that shows higher trading proficiency. Brokers assess the trader's understanding of risks linked to after-hours trading. These risks include lower liquidity, higher volatility, and wider bid-ask spreads. Some firms might also require traders to complete a suitability questionnaire to confirm their awareness of these factors.

Minimum Investment

Some brokerages have minimum investment or account balance requirements for after-hours trading. For example, a brokerage may require at least $5,000 or $10,000 in your account to access these trading hours. Additionally, some brokerages charge higher commissions or fees for after-hours trades. It is important to understand these costs to maintain profitability in your trading strategy.

Regulatory Requirements

Traders are required to follow the regulations established by financial authorities, which may involve age limitations (usually, traders must be 18 years old or older) and residency requirements (some brokerages may only accept clients from specific countries or areas). These rules aim to safeguard investors and promote equitable trading practices. For instance, the Financial Industry Regulatory Authority (FINRA) has established guidelines that brokerages must adhere to in order to ensure fair treatment of all traders.

Why Should You Engage in After Hours Trading?

After-hours trading lets investors participate outside normal hours, which are 9:30 AM to 4 PM EST. This time provides more flexibility. Investors can respond to news and economic changes that happen during off-hours. As the global economy keeps running, after-hours trading can offer an advantage. Traders can benefit from price changes, increased volatility, and shifts between supply and demand. It is important for investors to know the pros and cons of after-hours trading. This knowledge helps them improve their trading strategies and make smart decisions.

Headline Trading

One major benefit of after-hours trading is the chance to respond to breaking news and corporate disclosures. These developments often happen outside regular trading hours. For example, many American publicly traded companies are based across the United States. This can lead to earnings announcements being made after the market closes. Additionally, international companies operate within different time zones. This creates challenges for traders who are limited to standard trading hours. Important data releases, such as the monthly jobs report, often occur during premarket sessions. This highlights the importance of after-hours trading.

Schedule Adjuster

Regular trading hours are more convenient for East Coast residents because they match typical business hours. In contrast, West Coast traders, as well as those from Hawaii, may find these hours less suitable since they occur during the early morning. After-hours trading gives these traders greater flexibility, enabling them to participate more easily without being limited by standard trading times.

Scoring a Deal

Extended trading sessions use Electronic Communication Networks (ECNs). Each ECN has its own operational rules. This structure can create price discrepancies across different platforms. Savvy traders may find opportunities for advantageous deals. The inconsistency in asset pricing after hours allows traders to discover better buying or selling conditions. These conditions may not be available during regular trading sessions. This can benefit traders who are proactive and well-informed about market movements.

Considerations Before You Engage in After Hours Trading

After-hours trading offers unique opportunities for investors. It allows them to take advantage of market movements outside regular hours. However, this practice comes with risks. Traders should be cautious and evaluate key factors. Market liquidity, price volatility, and wider bid-ask spreads are important to consider. News releases and earnings reports can also affect stock prices during after-hours trading. These events can cause rapid price changes. A strategic approach is vital for anyone looking to trade after hours. It helps protect investments and navigate the market's complexities.

Wild Pricing

One of the risk factors that Benzinga mentioned in its article, “The Risks of PreMarket and After-Hours Trading, Part 1,” is the wild pricing during extended sessions. During regular hours, market makers provide liquidity for actively traded stocks, which in turn narrows the bid-ask spread. The more liquidity, the narrower the spread. But extended trading has no market makers, making it relatively illiquid and therefore broadening the spread. Combined with disparate ECNs running concurrently, you will likely see very wild pricing dynamics.

Crazy Volatility

Not only is the pricing of assets wild, how quickly they change within a unit of time is a risky hallmark of after-hours trading. According to the Financial Industry Regulatory Authority, “…your order may only be partially executed, or not at all, or you may receive an inferior price when engaging in extended-hours trading than you would during regular trading hours.”

New Kid on the Block

Ever had the experience of transferring to a new school in the middle of the academic year and having to introduce yourself to everyone? That’s what you will feel when you engage in the extended sessions. Except for this time, the pain is not to your social standing but to your wallet as very few average Joe retail investors trade after hours. Instead, you are competing with professionals.

Factors That Affect After Hours Trading

Trading after hours follows its own rhythm. Further, certain catalysts often impose a more significant impact on your portfolio than during normal hours.

Volume

Due to the elimination of the liquidity-providing intermediary (market maker), extended sessions usually feature very low volume compared to regular session levels. In part, this means that the bid-ask spread is incredibly wide, forcing you to watch your trades carefully.

Spark

A spark refers to an event that inspires extended-session trading, typically a breaking news report or a financial or economic disclosure.

Participation

Most traders call it a day when the regular session is over, so you’ll find little participation.

Costs

Extended trading can cost you mainly through the wide bid-ask spreads. The wider the spread, the more “energy” it takes bidders (buyers) to break even at the asking price.

Best Brokers for After-Hour Trading

Due to growing interest and demand from retail investors, some major brokerage firms now allow anyone to take their shot during extended sessions. Below is a list of names to consider.

Today's Online Stock Movers

A Trading Strategy for Market Participants

Due to the complexities of the modern world, access to after-hours trading has never been more important. Not only does this provide greater engagement potential for Americans, but it also helps attract international investors to participate in our equity and commodity markets. At the same time, people who trade after hours must know what they are doing. Thus, beyond the many nuances and potential pitfalls, mostly professionals consider the extended session home.

Frequently Asked Questions