After-Hours Trading - AHT

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What is 'After-Hours Trading - AHT'

After-hours trading (AHT) refers to the buying and selling of securities completed outside of normal trading hours and uses electronic communication networks (ECNs) to match potential buyers and sellers without the use of a stock exchange. After-hours trading was utilized primarily by institutional investors up until the 1990s, when ECNs became more widely available. After-hours trading is accessible to most investors through the use of brokerage accounts and is also known as “extended-hours trading” and the "after-hours market."

BREAKING DOWN 'After-Hours Trading - AHT'

After-hours trading volume in specific stocks often surges upon the occurrence of market-moving events, such as earnings reports, pre-earnings announcements, or merger and acquisition activity. Lower liquidity and wider bid-ask spreads are common features of after-hours trading. After-hours trading is heaviest in the first hour or two after markets close, before tapering off sharply. As financial markets become increasingly integrated with the advent of globalization, after-hours trading is likely to expand going forward.

Advantages of Trading After-hours

For traders, there are several advantages to trading after normal market hours. One is convenience. Investors may prefer trading at off-peak times, and after-hours trading provides this added flexibility. Many significant news events, such as earnings releases and economic indicators, are released outside of normal trading hours. The after-hours trading sessions are opportunities to trade immediately on new information rather than waiting for the traditional trading day to take a position.

Drawbacks of Trading After-hours

One of the biggest disadvantages to after-hours trading is the lack of liquidity and volume. Whereas the normal market day typically sees billions of shares trade hands, even the most active stocks in the after-hours market may only trade one or two million shares. This can potentially make finding a trading partner more difficult and increase the costs of buying and selling. A lack of traders can result in the inability to execute a trade at all.

After-Hours Trading Hours

Normal market trading occurs between 9:30 a.m. and 4:00 p.m., Eastern Standard Time. The after-hours session takes place from market close through 8 p.m. and occurs up until 5 p.m. on days when the market closes early.

Similar to the after-hours market, trading can take place in the pre-market as well. Typical pre-market trading occurs from 6:00 a.m. to just minutes before the normal trading hours commence. Trading in some securities along with certain pre-market indicators can begin as early as 4 a.m.

To learn more about the history of after-hours trading, check out Why does after-hours trading exist?.

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