How To Trade After Hours – Extended Hours Stock Trading

Extended/after hours and pre-market hours trading may seem like a weird thing to many people. The markets always have open for a certain amount of time and open/close at specific times. But did you know that you actually can trade outside these hours?

Stock Market Open And Close – When Is The Stock Market Open:

Before we get into any pre- or after hour trading time, it is important to cover the regular market trading hours. This shouldn’t be anything new for most of you, but it is still important. The big US exchanges (New York Stock Exchange and the Nasdaq) have been open from 9:30 am to 4:00 pm (EST) from Monday to Friday on ‘normal’ weekdays. There are always some holidays when the exchanges open and close at different times or not at all.

NYSE_Advanced_Trading_Floor-med

NYSE pre-market trading hours and more:

Pre-market and after-hours trading is obviously only available on days where the market is open. Additionally, it is available on half-day market holidays. In the U.S. pre-market trading normally begins at  8 am and ends at 9:30 am (EST). After hour trading on the other hand usually runs between 4 pm and 8 pm. But this may be different depending on the exchange. For example, I think that the Nasdaq only has extended hour trading available until 6:30 pm.

Note that this only is the case for certain exchanges that offer equities (bonds, stocks, ETFs…). For example, Forex is opened for trading 24 hours a day, 5 days a week.

What Is After Hours Trading:

Even though pre- and after-hours trading is regarded as something fancy and special from most people, it actually is not. In fact, it actually only differs very slightly from the regular trading during the standard market hours. The main difference, of course, is that you can trade before and even after regular market open times. The ‘rules’ of the pre/extended hour trading are more or less exactly the same as it is normally. The differences only regard the trading risks and market conditions. Here is a list of the differences and risks:

  • Much Lower Liquidity. Compared to regular market hours, pre- and after hours have much fewer participants most of the time. This means fewer products get traded meaning that there is less volume. Lower liquidity means that entering and more importantly exiting positions can become much harder for you.
  • Longer Filling Times/Worse Pricing. With lower liquidity and fewer market participants comes longer filling times because it is harder to find someone that is willing to buy/sell assets at the wanted price. This often means that you will get filled at bad prices or that the Bid/Ask spreads are wide.
  • These are in my opinion the main risks when trading in extended hours. But if you want to read about a few more, I recommend this short Extended Hours Trading Risk Disclosure Statement from the broker Tastyworks.

Usually pre- and after hours have less volatile prices than regular hours, but this is not always the case.

Stock Options Trading Hours  – Do Options Trade After Hours?

how to trade after hours

Typically, only stocks are available for pre- and after hour trading. But recently some options on very liquid and big ETFs (like SPY) and other products have actually started to trade some extended time. Nevertheless, this time is only very limited and does normally not exceed 15 minutes. The reason for that is the huge lack of liquidity. When stocks already have very limited volume, options will have an even bigger problem.

Should You Trade Stocks After Hours – The Risks:

I don’t think trading in extended market hours is necessarily a bad thing. Nevertheless, I do think that when you do have the opportunity to trade in the regular open hours, you should trade there. It all comes down to the additional risks mainly due to the lack of liquidity. Therefore, it is practically always better to trade during the open market hours. But IF you do not have any time during the day, extended hours is a great way of still being involved in the market. In this case, it is great.

In addition to that, pre- and after market trading prices and volume can give you a very good impression for the upcoming day. Usually, high volatility and high volume in the pre- and/or after markets indicate which stocks will become hot after the actual market open. If stock XYZ has an unusual high volume during pre- hour markets, it will most likely be an upcoming hot stock after the regular open.

Furthermore, extended hours trading can be a good way to trade events like earnings or other announcements as these often occur after or before the market close or open.

As I mainly trade options and find enough time during the regular open hours, I do not trade during extended hours.

 How To Trade Extended Hours:

First of all, just like normal trading, you will need a broker to trade pre/after hours. Additionally, this broker does have to have the feature to trade in these times. Note that this is not guaranteed as not all brokers support trading in extended hours. But nowadays most good brokers do definitely support it. How extended hour trading works depends heavily on your broker. There are big differences; some require additional authentication, some won’t make a difference between open and extended hour trading and some don’t offer it at all. If you are interested in extended market trading, I highly recommend that you ask your broker directly or at least try to search it on the web as there are differences from broker to broker.

Conclusion:

Finally, let’s sum things up: Extended market hours trading can make you more flexible as it gives you more time to access the market. But in general, it is much better to trade during the normal open hours as extended hours does carry some additional risk with it. If you can’t access the market because of some kind of employment, extended hours gives you the opportunity to still be active in the markets.

Here are some tips that I recommend if you decide to trade in extended hours:

extended hour trading

  • Use limit orders. Limit orders let you select a certain price and will only get filled if that price is available. As liquidity is limited during extended hours, prices tend to be worse than during other times. Limit orders guarantee you an entry at a good price. But note that filling times can take much longer and sometimes you won’t get filled at all.
  • Just like during regular open hours, try to trade the assets with most liquidity as these have the least disadvantages.

Before you start trading in extended hours, I found these very useful answers to frequently asked questions at Fidelity (a broker). Check it out here, to learn even more about specific broker requirements and rulses:

http://personal.fidelity.com/webxpress/help/topics/learn_extended_hours_trading.shtml

4 Replies to “How To Trade After Hours – Extended Hours Stock Trading”

  1. Pretty good article you have here. I trade forex and your point on liquidity is a very valid one. I like your advice on checking the liquidity in the early or after hours market information as it can give you a heads up on what to look at trading when the markets open in their normal trading hours. I will check that out.
    Good points Louis and great website you have.
    Thanks
    John

  2. Thank you for your article. How to trade after hours is a very handy blog to understand some of the ins and outs of trading stocks. Much lower liquidity and Longer Filling Times/Worse Pricing makes sense and I am glad that you elaborate on this. I think that I will mostly do my trading during normal business hours to lessen my risk. Stocks can be challenging enough as is so less risk in my opinion lets me sleep better at night. Thanks again for the useful information.
    John
    Swagbeards

    1. Hey John,

      I’d also recommend that you rather trade during the normal open hours if you can do this. If you have any questions, never hesitate to ask them. Thanks for the comment.

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