What Is After-Hours Trading, and Can You Trade at This Time?

What Is After-Hours Trading?

After-hours (post-market) trading is the period after the market closes when traders and investors can buy and sell securities. Both the New York Stock Exchange (NYSE) and the Nasdaq Stock Market normally operate from 9:30 a.m. to 4 p.m. Eastern Time (ET). Trades during the after-hours session can be completed anytime between 4 p.m. and 8 p.m. ET.

Who Can Trade During the After-Hours Session?

After-hours trading was used primarily by institutional investors until mid-1999, when ECN services became more widely available to retail investors. An ECN not only allows individual investors to interact electronically but also lets large institutional investors interact anonymously, thereby hiding their actions.

As extended trading has become increasingly popular over the past decade, many traders and investors have embraced it. In fact, several brokers now offer after-hours trading, including Charles Schwab and Fidelity.

Risks of After-Hours Trading

The development of after-hours trading offers investors the possibility of substantial gains, but you should also be aware of some of the inherent risks and dangers that come with investing during this time. These include:

• Less liquidity: There are far more buyers and sellers during regular hours. During after-hours trading, there may be less trading volume for your stock, and it may be harder to convert shares to cash.
• Wide spreads: Lower trading volumes may result in a wide spread between the bid and ask prices. Therefore, it may be hard for you to have your order executed at a favorable price.
• Tough competition for individual investors: While individual investors now have the opportunity to trade in the after-hours market, the reality is that they must compete against large institutional investors who have access to more resources than the average individual investor.
• Volatility: The after-hours market is thinly traded in comparison to trading during regular hours. You are more likely to experience severe price fluctuations in after-hours trading than during regular-hours trading.

Here’s an example of some of the risks associated with after-hours trading:

Assume an investor wants to sell her shares of a company—call it XYZ Company—for $250 in the session after the regular markets have closed. Due to the illiquid after-hours market, the highest bid price from the sparse number of buyers is $240. She can either change her limit price to $240 to sell right away, or she can keep her original price and run the risk of a partial order or a not-filled order. At the end of the trading session at 8 p.m., all unexecuted orders are canceled.

Benefits

After-hours trading comes with a number of risks, but there are some possible benefits, too:

• Trading on fresh information: Being able to trade after the normal markets close allows you to react quickly to breaking news stories or fresh information before the next day’s market open.
• Pricing opportunities: Although volatility is a risk associated with trading after hours, you may find some appealing prices during this time.
• Convenience: Investors may prefer trading at off-peak times, and after-hours trading provides this added flexibility.

Market Hours Schedule

NYSE (Tape A)

• Preopening: Monday through Friday, 6:30 a.m. ET
• Standard trading: Monday through Friday, 9:30 a.m. to 4 p.m. ET

NYSE (Tapes B and C)

• Preopening: Monday through Friday, 6:30 a.m. ET
• Early trading: Monday through Friday, 7 a.m. to 9:30 a.m. ET
• Standard trading: Monday through Friday, 9:30 a.m. to 4 p.m. ET

NYSE American and NYSE National

• Preopening: Monday through Friday, 6:30 a.m. ET
• Early trading: Monday through Friday, 7 a.m. to 9:30 a.m. ET
• Standard trading: Monday through Friday, 9:30 a.m. to 4 p.m. ET
• Late trading: Monday through Friday, 4 p.m. to 8 p.m. ET

NYSE Arca Equities

• Preopening: Monday through Friday, 2:30 a.m. ET
• Early trading: Monday through Friday, 4 a.m. to 9:30 a.m. ET
• Standard trading: Monday through Friday, 9:30 a.m. to 4 p.m. ET
• Late trading: Monday through Friday, 4 p.m. to 8 p.m. ET

Nasdaq Stock Exchange

• Pre-market trading: Monday through Friday, 4 a.m. to 9:30 a.m. ET
• Standard trading: Monday through Friday, 9:30 a.m. to 4 p.m. ET
• After-hours trading: Monday through Friday, 4 p.m. to 8 p.m. ET

U.S. Stock Exchange Holidays

U.S. markets are closed on the following days:

• New Year’s Day
• Martin Luther King Jr. Day
• Presidents Day
• Good Friday
• Memorial Day
• Juneteenth
• Independence Day
• Labor Day
• Thanksgiving Day
• Christmas Day

U.S. Stock Exchange Shortened Trading Days

The U.S. stock exchanges have shortened trading days and close early on the following days:

• Black Friday (the day after Thanksgiving): 9:30 a.m. to 1 p.m. ET
• Christmas Eve: 9:30 a.m. to 1 p.m. ET

Extended Hours Trading

Extended hours trading is the term used to refer to both post-market (after-hours) and pre-market (before-hours) trading. Most exchanges operate post-market trading from 4 p.m. to 8 p.m. ET.

Pre-market trading occurs in the morning before the markets open—as early as 2:30 a.m. on some exchanges or 4:30 a.m. on others. Pre-market hours, like post-market trading hours, experience very thin liquidity and volume, which can lead to non-optimal pricing.

The Bottom Line

After-hours trading is a period when investors and traders can buy and sell after the market closes. It is part of extended-hours trading, which is composed of post-market and pre-market trading times.

The after-hours market experiences thinner liquidity and lower volume compared to standard-hours trading, so traders must exercise caution and have an advanced understanding of market reactions and trends. Otherwise, they risk losses if market react differently than expected.