How to Trade Stocks After Hours: Pre-Market and After-Market

For most stock markets in the US, trading session, the period during which trading activity happens, occurs between 9.30 a.m. and 4 p.m. Eastern Standard Time Monday to Friday. It is the period the market opens and closes in a single day of business. Many exchanges, including NYSE, Nasdaq, and DOW see most trading activity during this time.

However, trading not only takes place during this time of the day but even after the market closes and even before it opens. If you’re new to trading, you’ve probably heard about after-hours trading and pre-market trading, but you have no idea how to go about it. Read on to learn more about after-hours trading, how you can participate, and the pros and cons of trading stocks after hours.

What Is After-Hours Trading?

After-hours trading, also known as after-market trading, is when investors buy and sell securities after the market closes. Usually, after-hours trading session happens between 4 p.m. and 8 p.m. EST. After the closing bell, traders who want to get in and out of options utilize this period.

Trade after hours stocks and pre-market trading only occur through digital markets called electronic communication networks (ECNs). An ECN matches buyers and sellers to trade securities without involving a third party, offering investors privacy. 

The trading volume after hours is relatively low because there are few active traders. However, the volume can change with news events like the release of earnings reports. Such news can cause significant price changes, and traders use this period to decide whether to buy or sell a stock. 

It is also important to note that trade after hours doesn’t take place in all stocks. Stocks with little interest may not have after-hour trades. Also, a buyer and seller must be willing to transact at the same price for a trade to occur.

Pre-market and After-Market Trading

After-hours trading can either be done before the market opens or after the market closes — pre-market or after-market trading. After-market trading happens between 4 p.m. and 8 p.m., that is, after market close. This allows investors to take opportunities for significant news events and react accordingly.

Investors can also take part in pre-market trading, which occurs before the market opens usually between 4 a.m. and 9.30 a.m. The time pre-market opens depends on the brokerage exchange. 

How to Trade Stocks After Hours: Pre-Market and After-Market
How to Trade Stocks After Hours: Pre-Market and After-Market

How Do I Trade Stocks After Hours?

Investors can buy and sell stocks on the NYSE, Nasdaq, among other exchanges during regular trading sessions. After the market close, you can only trade via ECN. 

Over the past decade, trade after-hours stocks have become increasingly popular. Today, several brokers offer after-hours trading, including TD Ameritrade, Wells Fargo, Schwab, and Fidelity.

First, confirm if your broker give investors access to after-hours trading. While some brokers allow limited access, others have access to certain computer networks, which lowers execution orders. Therefore, be sure to read all the disclosure requirements before going ahead.

Why You’d Trade Stocks After Hours

Beyond having extra time to make plays, there’s more to trading stocks after-hours.

  • Act on news catalysts: Trading stocks after market close gives you an edge to react to news catalysts. During off-peak times, significant news events reported after regular trading hours, such as the release of the company’s earnings reports, may affect stock prices. Traders can use this information to enter or exit positions.
  • Pricing opportunities: Although after-hours trading is often characterized by high volatile stock prices, you can find favorable stock prices during this period. 
  • Flexibility: Extended trading offers flexibility to some investors who prefer off-peak times.
  • Trade on your schedule: Regular trading hours overlap with your busiest hours of the day. After-hours trading gives you the convenience to trade when you’re free.

Trade After Hours Stocks Risks

While after-hours stock trading gives investors the opportunity to bag huge gains, it comes with several risks, including:

  • Higher volatility: Unlike regular trading sessions, you’re likely to experience dramatic price fluctuations because the trading volume is low. This makes it even difficult to know when to buy or sell a stock.
  • Wide spreads: As aforementioned, a lower trading volume may lead to a wide spread in bid-ask prices. Therefore, investors may have to settle for unfavorable prices.
  • Technology glitches: When it comes to after-hours trading, you may sometimes need to deal with system-related issues. For instance, you may encounter delays when executing orders.
  • Liquidity limitations: Since there are few active traders during after-hours trading, that translates to low trading volume, making it hard to execute trades.
  • Limited orders: If you decide to trade after-hours, you may be limited in what you do, unlike regular day trading. Brokerage companies only allow limit orders to be executed after the market close.
  • Stiff competition for individual investors. While individual investors can trade stocks after hours, they have to compete with large institutions that happen to have access to more resources than them.

Is After-Hours Trading Right For You?

After-hours trading may be suitable for traders looking to profit from expected news, which may provide a means of entering or exiting a stock upon announcement of unexpected news. It may not be a good idea if you’re a long-term investor who can’t afford to take excessive risk with your portfolio.

If you think after-hours stock trading is okay with you, ensure that you check with your broker any rules and regulations that apply to after-hours trading. If you’re a beginner, always start slow and walk your way up once you’ve learned the ropes.

Bottom Line

Trade after-hours stocks may offer many opportunities to traders, but it also comes with plenty of risks. Anyone looking to participate in after-hours trading should be mindful of those risks. Remember to check with your broker to see if it offers after-hours trading.

Author: Lydia Kibet

Lydia is a freelance financial writer with over three years of writing experience. She enjoys writing about personal finance, investing, real estate, and retirement. When she’s not writing an engaging article, she’s reading or playing her guitar.

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