Loading the player...
A:

Most investors know that the major stock exchanges have standard trading hours - set periods of time each day when trading occurs through the exchange. Most major exchanges trade from 9:30am to 4pm EST each day, with the first trade in the morning creating the opening price for a stock and the final trade before the end of trading at 4pm providing the day's closing price.

But there are actually, broadly speaking, three markets in which shares can be traded: pre-market, regular market and after-hours market. The regular market trades between 9:30am and 4pm EST; the pre-market trades from 8am to 9:30am EST; and the after-hours market trades from 4:30pm to 8pm EST. The pre- and after-hours markets function in the same fashion as the regular market in that the shares are traded between parties at an agreed upon price. In other words, the price you will receive is the price that someone in the after-hours or pre-market is willing to pay.

The major difference between the markets is that the pre- and after-hours markets will generally have less liquidity, more volatility and lower volume than the regular market. This can have a huge effect on the price you end up getting for your shares, so it is usually important to use a limit order on any shares that you buy or sell after normal trading hours.

Generally speaking, price changes in the after-hours market have exactly the same effect on a stock as changes in the regular market do: a $1 increase in the after-hours market is the same as a $1 increase in the regular market. Therefore, if you have a stock that falls from $10 to $9 during the day's trading session, but then rises by $1.50 to trade at $10.50 in the after-hours market, you will have experienced a $1 loss during the day's session ($10 - $9), but because prices rose in after-hours trading, you would be sitting on a $0.50 per share gain.

However, once the regular market opens for the next day's trading (when most individual investors will have the opportunity to sell), the stock may not necessarily open at the same price at which it traded in the after-hours market. For example, if a stock's price increases greatly in the after-hours market due to a rumor of increased sales, there could be a lot of investors who want to sell immediately at the market open, increasing selling pressure and possibly driving the price of the stock down.

The price changes seen in the after-hours market are generally useful for showing how the market reacts to new information released after the regular market has closed. However, after-hours price changes are generally more volatile than regular-hours prices, so they shouldn't be relied on as a 100% accurate reflection of what a stock will trade at when the next regular session opens.

In the past, the average investor could only trade shares during regular market hours - after-hours trading was reserved for institutional investors. But with the advent of computers and electronic communication networks, today's markets are open more than ever, and individuals are free to trade after hours too. The day when investors will be able to trade 24 hours a day, seven days a week, may not be too far off.

To learn more, see The Nitty-Gritty Of Executing A Trade and What is after-hours trading?

RELATED FAQS
  1. Why are the bid and ask quotes usually so far away from each other in after-hours ...

    After-hours trading is defined as the exchange of securities outside of an exchange's specified regular trading hours (usually ... Read Answer >>
  2. What trends and data influence after-hours traders the most?

    Learn about the specific information that after-hours traders review to influence their trading. Read Answer >>
  3. What is after-hours trading? Am I able to trade at this time?

    After-hours trading (AHT) refers to the buying and selling of securities on major exchanges outside of specified regular ... Read Answer >>
  4. Does the closing price have to equal the last price traded?

    Logically and theoretically, the last price traded should be the same as the closing price of a stock. However, the way we ... Read Answer >>
  5. What does "after the bell" mean?

    "After the bell" is financial slang for activity occurring after the close of the stock market, including after-hours trading, ... Read Answer >>
  6. What kind of assets can be traded on a secondary market?

    Learn about the difference between the primary market and the secondary market, and what types of assets are traded on secondary ... Read Answer >>
Related Articles
  1. Trading

    Trading In The Pre- And Post-Market Sessions

    After-hours trading may have benefits for traders, but there are some potential problems.
  2. Investing

    The NASDAQ Pre-Market: What You Need To Know

    Curious about pre-market or extended-hours trading? Here's a quick guide so you'll know what to expect.
  3. Investing

    Why Late Trading Is Illegal

    Institutional investors got a sweet deal that soured retail investors' mutual fund returns.
  4. Investing

    Costco Reports Mixed Q1 Results, Food Sales Strong

    A miss on the top line and beat on the bottom line has led to some investor confusion.
  5. Investing

    The Opening Cross: How Nasdaq Stock Prices Are Set

    The National Association of Securities Dealers Automated Quotations, commonly referred to as Nasdaq, is a computerized marketplace where stocks are traded from 9:30am to 4pm Eastern Standard ...
  6. Trading

    Rise and Shine With This Pre-Market Checklist

    Your pre-market routine sets the stage for the rest of the trading day. Use this comprehensive checklist to get up to speed, ahead of the opening bell.
  7. Trading

    Eight Items That Impact Daily Trades

    Find out which factors can help you squeeze more profit out of each position.
  8. Trading

    The Two-Hour-A-Day Trading Plan

    A lot of stock activity takes place at the beginning and end of the trading day. Find out how you can use this to benefit your investing strategy.
  9. Investing

    Ways To Gauge The Market Open Direction

    Accurately predicting the stock market’s opening moves can be a useful tool. If your projection is accurate, you have opportunity to profit. Of course, the first step is to correctly gauge the ...
  10. Insights

    A Breakdown on How the Stock Market Works

    Learn what it means to own stocks and shares, why shares exist, and how you buy and sell them.
RELATED TERMS
  1. Opening Price

    The price at which a security first trades upon the opening of ...
  2. Closing Quote

    A security's final regular-hours trading price for the day. Because ...
  3. Trading Session

    A period of time consisting of one day of business in a financial ...
  4. Stock Market

    The market in which shares of publicly held companies are issued ...
  5. Opening Range

    The highest and lowest prices of a security during the first ...
  6. Open

    1. An unexecuted order that is still valid. An open order is ...
Hot Definitions
  1. Treynor Ratio

    A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless ...
  2. Buyback

    The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies ...
  3. Tax Refund

    A tax refund is a refund on taxes paid to an individual or household when the actual tax liability is less than the amount ...
  4. Gross Domestic Product - GDP

    The monetary value of all the finished goods and services produced within a country's borders in a specific time period, ...
  5. Inflation

    The rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of ...
  6. Merchandising

    Merchandising is any act of promoting goods or services for retail sale, including marketing strategies, display design and ...
Trading Center