The stock markets close in the mid-afternoon, but the world never stops turning. Wouldn’t it be nice if you could buy or sell stocks after hearing something important in the news, without having to wait until the following day? What if you just simply forgot to place your trades that day, only to get home and think that you’ve missed the boat? Fortunately, you can buy and sell stocks outside of market hours by after-hours trading.
How to Buy Stock After Stock Market Hours
Here are a few questions you should be asking if you want to reap the benefits of after-hours trading.
What Is After-Hours Trading?
After-hours trading refers to trades made between 4:00 and 8:00 PM after the markets—such as the NYSE and NASDAQ—have officially closed for the day.
There are also pre-market trading hours, which are before the market opens (this varies market by market). These time periods are opportunities for all types of investors to buy and sell a stock, though there are some limitations and risks, which we’ll discuss below.
While stocks are typically traded within the context of markets, like the New York Stock Exchange, after-hours trading is facilitated by an electronic communication network (ECN), which is essentially a computerized matching system to pair up willing buyers and sellers.
When Are After-Market Trading Hours?
After-market or post-market trading hours are generally from 4:00 to 8:00 PM. The start of after-market hours will depend on the brokerage you use. Some brokers don’t facilitate after-hours trading until 4:15 PM, while others begin just a few minutes after the market closes.
What Is Extended-Hours Trading?
Extended-hours trading is just an umbrella term for after-hours trading in the afternoon and pre-market trading in the morning. Extended-hours trading can be segmented into two parts. Post-market trading occurs between 4:00 and 8:00 PM, while pre-market trading occurs any time before the markets open at 9:30. These two timeslots of activity (post and pre-market trading) are also referred to as extended hours trading or electronic trading hours (ETH).
What Is Pre-Market Trading?
The start time for pre-market trading varies from exchange to exchange. In many cases, this can start at 4:00 AM, though the bulk of pre-market trading activity occurs between 8:00-9:30 AM.
“Early to bed, early to rise, makes a man healthy, wealthy, and wise,” Benjamin Franklin once said. His wisdom is definitely applicable to the stock market because traders who get started early in the day can take advantage of pre-marketing trading before the frenzy of activity that starts at 9:30.
Pre-market trading hours begin at 7:00 AM for securities listed on the NYSE, and 4:00 AM for securities listed on the NASDAQ. These early hours can provide huge gains to traders who are already abreast of current events, especially those that are already transpiring in other time zones (if applicable). While the rest of the world may be sleeping, these traders want to be the early bird that gets the proverbial worm.
Which Online Stockbrokers Offer After Hours Trading?
While after-hours trading was formerly only available to the elite and/or large institutional investors, it’s now accessible to everyone. However, not all brokerages offer their customers access to extended-hours trading.
Some of the more recognizable names offering extended-hours trading are Merrill Edge, Wells Fargo, TD Ameritrade, Charles Schwab, Vanguard, and Fidelity. Keep in mind, some of these brokerages offer only after-market trading hours, while others offer both after-market and pre-market trading hours.
In the last few years, some newer faces—such as Robinhood, WeBull, and E*TRADE—have made an appearance alongside established brokerage firms, especially with the explosion and increased functionality of smartphone apps. There are also other apps, such as Acorns, that let you invest around the clock, but these apps are more like mutual funds. While you can pick the risk level of your portfolio (on a spectrum of aggressive to conservative), you cannot buy and sell individual stocks.
As a side note, some of these apps are good places to explore other types of ways to grow your money. Aspiring retail investors or cryptocurrency prospectors can do well with these investment products. And if you’re specifically interested in and want to trade stocks, the brokerage options listed above can facilitate your work during extended trading hours.
Investors selecting a brokerage should always do their due diligence and make sure it’s endorsed by a regulatory agency such as the Securities and Exchange Commission (SEC). It’s also advisable to read the written disclosures and all the fine print of their terms.
How Does After Hours Trading Work?
During extended trading hours, instead of your trade happening in the market (like the NYSE or NASDAQ) it’s facilitated by a computerized order-matching system that pairs up buyers and sellers. These matching systems are called ECNs (electronic communication networks). During normal market hours, you can buy stocks through a “market order” at their current listed price—or close to it—because there are enough buyers and sellers actively trading.
During extended hours trading, however, investors can only buy and sell with limit orders. This means they set a price ceiling and price limit for buying and selling. If the stock hits that price, they’ll buy or sell accordingly. The reason for this limitation during after-hours trading is simply because there is less activity. Consequently, if there isn’t a buyer or seller offering what you want at the price you want, your order will not be executed.
When placing after-hours trades, it’s important to realize that they are not like transactions made on the floor of the stock exchange during normal trading hours—where there are several different order types that can be placed between the opening and closing of the markets. Traditional market orders are executed during normal trading hours as close as possible to the market price. There are also limit orders, stop-loss orders, and buy stop orders—all of which can be placed one day and filled on another day, because the action to buy or sell is triggered by the stock price.
By contrast, after-hours trades can only be executed during that session, and if they’re not, the order is canceled without being filled.
Who Is Allowed to Trade After Hours?
Institutional investors, such as brokerages and banks, were the primary parties involved in after-hours trading up until the 1990s when electronic communication networks became available to connect potential buyers and sellers. Today, anyone can use an ECN to place a trade, and larger institutional investors can use them to trade anonymously. There are many brokerage firms, such as Charles Schwab, Fidelity, and TD Ameritrade, which all allow individual investors to place trades after hours—just make sure you read the disclosures they’ve provided.
Why Does After Hours Trading Help You in the Stock Market?
After-hours trading can help you make huge gains in the stock market game—if you know what you’re doing. Because the market is officially closed, investors with an eye on the news can make moves at the right time, before the market opens the next day. As you’ve probably noticed, companies don’t limit their decision-making to market hours, so market-shaking events can transpire after 4:00 PM.
Convenience is another factor that can work to your advantage. Some traders are just too busy during the day to place a trade, and after-hours trading may give you the time and flexibility you need. The volatility of the market after-hours can work to your advantage, giving you awesomely discounted prices or huge gains.
Are There After-Hours Trading Risks?
You can make some great gains by trading after-hours, but it’s important to keep the risks in mind. There are far more transactions going on when markets are open. Consequently, after markets have less activity and trade volume. You may have a hard time finding a buyer to convert your shares to cash liquidity, or a seller to give you the number of shares you need. There may be wider spreads between bid and ask prices, making it harder to get your order executed at a price you want. Private investors will have to compete against larger institutional investors with more resources. Lastly, because the after-hours market is so sparsely populated, there can be severe price fluctuations.
In addition to the risks, it’s important to know that there are also some limitations to after-hours trading. As mentioned, only limit-orders are accepted. The largest-sized order you can place is 25,000 shares (though this may not concern individual investors). Some securities may not be available for purchase. Lastly, all unexecuted orders are canceled at the end of the session—they do not carry over into market hours. That’s important to keep in mind if you place an order in the evening, go to sleep, and then start your day without checking in on the order. You cannot just assume it will be filled.
Additionally, some traders have reported that technology is more subject to lags, meaning that your trade may not even go through. While hiccups can occur even during normal market hours, it’s especially important to be aware of this during extended-hours trading, because unexecuted orders are canceled—so make sure to keep an eye on the limit-order trades you’ve placed.
Why Do Stocks Fluctuate After Hours?
The truth of the matter is that stock prices are always fluctuating. Some stock prices fluctuate wildly all the time, while others remain relatively stable—but even “stable” stocks are constantly going up and down in price, even if it’s just by pennies or fractions of a penny. Every stock sale is a negotiation, and because there are more risks present in the after-hours market, prices can fluctuate even more that they would during normal market hours. Because there are fewer buyers and sellers, the laws of supply and demand can wreak havoc on stock price stability.
Should a Stock Market Investor Trade After Hours?
If you’ve turned management of your stock portfolio over to someone else, such as one of the many brokerage firms or market makers, you never have to think about whether you should buy or sell any stock—whether it’s during market hours or after-hours. But if you are buying and selling stocks yourself, the biggest factor in determining whether or not you should make any move is education. It’s important to avoid emotional decisions without having all the facts.
For example, there are lots of opinions going around about groundbreaking and disruptive companies like Tesla. Rather than getting swayed by editorial pieces or social media posts, you should keep your eye on data and statistics, like those provided on MarketBeat’s NASDAQ:TSLA.
After-hours trading is all about what you know. Understand that trading during after-hours and pre-market hours carries certain risks and limitations. An informed investor who trades after-hours is well-abreast of current events, has foresight, and can make logical decisions. During the day, they frequently look at real-time information such as stock analyst ratings.
Fortunately, this is not out of your reach. There are plenty of real-time tools online, along with detailed analysis from financial pundits. Several decades ago, after-hours trading was not accessible to the average investor, and neither was accessible real-time stock information.
Today, everything you need to know is just a swipe away, from in-depth articles and news announcements to stock buyback announcements. There is also a myriad of useful tools for refining your search for the next stock in your portfolio, such as a dividend stock screener.
Unfortunately, this recent information implosion is a double-edged sword. There are plenty of frauds posing as experts and snake-oil salesmen selling wonder-courses. Even the amount of reliable information has a downside: There is just too much. To that end, you need to filter out the noise and lock down a few sources of information that can guide your decision-making in the stock market. MarketBeat is an online news and information source about the stock market, finance, and economics. While many of our visitors are seasoned traders and financiers, we are also dedicated to providing beginning investors with authoritative, comprehensive, and digestible information about the stock market.
After Hours Trading
Stocks are a great investment choice, especially for those who know how to play the market. Most trading activity occurs during the day, and investors who make trades during normal trading hours will reap the rewards of their due diligence accordingly. But investors who make trades outside of normal market hours can see even greater gains from the result of their investment choices—if they know what they’re doing.
The fact that you don’t have to limit your stock trading to market hours is great news for busy professionals. If you don’t have time during the day to sit down and make a trade (or multiple trades), you can do so later, using one of the many brokerages that now offer their customers extended-hours trading.
It’s important to keep in mind that extended-hours trading does carry risks and limitations. Buying and selling stocks can yield great gains, but it may be too volatile for some investors. To that end, investors looking for something more stable can also explore dividend investing. Alternatively, investors with a tolerance for risk can leverage their knowledge to execute trades after-hours, and even explore new frontiers with tools like a cryptocurrency screener.
Self-guided investors should also explore other ways to leverage their inactive liquidity. While many people turn to advisors or firms to manage money for them, some enjoy the reward of turning information into profit. A dependable market resource can help you learn about other investment vehicles like options and futures. Of course, no matter your level of risk tolerance as an individual investor, you’ll want to know about which stocks to buy. Without a solid source of information, investing in stocks—especially stocks after hours—can become nothing more than a hobby and expense.
World events and the stock market are certainly intertwined, and the world never stops turning. Something is always happening somewhere. With the right knowledge and education, after-hours trading can be your chance to make a move when the time is right.
Featured Article: Trading Ex-Dividend Strategy7 Cyclical Stocks That Can Help You Play Defense
A cyclical stock is one that produces returns that are influenced by macroeconomic or systematic changes in the broader economy. In strong economic times, these stocks show generally strong growth because they are influenced by discretionary consumer spending. Of course, that means the opposite is true as well. When the economy is weak, these stocks may pull back further than other stocks.
Cyclical stocks cover many sectors, but travel and entertainment stocks come to mind. Airlines, hotels, and restaurants are all examples of cyclical sectors that do well during times of economic growth but are among the first to pull back in recessionary times.
Why do cyclical stocks deserve a place in an investor’s portfolio? Believe it or not, it’s for the relative predictability that they provide. Investors may enjoy speculating in growth stocks, but these are prone to bubbles. This isn’t to say that cyclical stocks are not volatile, but they offer price movement that is a bit more predictable.
In this special presentation, we’re looking at cyclical stocks that are looking strong as we come out of the pandemic. And some of these stocks held up well during the pandemic which means they’re starting from a stronger base.View the "7 Cyclical Stocks That Can Help You Play Defense "
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