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. The New York Stock Exchange and the Nasdaq Stock Market in the United States trade regularly from 9:30 am to 4:00 pm ET, with the first trade in the morning creating the opening price for a stock and the final trade at 4:00 pm providing the day's closing price.

After-hours trading is the period of time after the market closes when an investor can buy and sell securities outside of regular trading hours. Trades in the after-hours session are completed through electronic communication networks (ECNs) that match potential buyers and sellers without using a traditional stock exchange. 

The Three Stock Trading Sessions

There are actually, broadly speaking, three markets in which shares can be traded: pre-market, regular market, and the after-hours market.

  • The pre-market trades from 4:00 am to 9:30 am ET.
  • The regular market trades between 9:30 am and 4:00 pm ET. 
  • The after-hours market trades from 4:00 pm to 8:00 pm ET.

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.

What are the Major Differences in Extended Hours Trading?

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 outside normal trading hours.

Generally speaking, price changes in the after-hours market have 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 (your purchase price) to $9 during the regular 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 from the previous day's after-hours level.

The price changes seen in the after-hours market are useful for showing how the market reacts to new information released after the regular market has closed. However, after-hours price changes are more volatile than regular hours prices, so they shouldn't be relied on as an 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 proliferation of the internet and ECNs, today's markets are more open than ever and individuals are free to trade in the extended hours sessions too. The day when stock investors will be able to trade 24 hours a day, seven days a week may not be too far off, fingers crossed. (For more information on brokers that provide these different hours of trading, check out Investopedia's list of the best stock brokers for day trading.)

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

    The low volumes typically traded through after-hours trading systems can create wide bid-ask spreads. Read Answer >>
  2. Where can I find information about pre- and after-hours trading on the NYSE and the ...

    The first place investors should look to find information about pre-market and after-market activity is their brokerage account's ... Read Answer >>
  3. Why don't stocks begin trading at the previous day's closing price?

    Between the closing bell and the next opening bell, a number of factors can affect the attractiveness of a particular stock ... Read Answer >>
Related Articles
  1. Trading

    Activities to take advantage of in pre-market and after-hours trading

    Learn how to access opportunities and hedge risk outside regular trading hours.
  2. Investing

    The Nasdaq Pre-Market: What You Need to Know

    Curious about Nasdaq pre-market or extended-hours trading? Here's a quick guide.
  3. Trading

    The forex 3-session system

    Market hours for Tokyo, London and New York comprise the three trading sessions that determine volatility peaks. Find out why.
  4. Personal Finance

    A Day in the Life of a Day Trader

    Day trading has many advantages, and while we often hear about these perks, it's important to realize that day trading is hard work.
  5. Trading

    Day Trading for Beginners

    Interested in day trading but don't know where to start? Here are some common day trading strategies, as well as some day trading tips for beginners.
  6. Trading

    Alphabet Stock Pops Then Drops Following Earnings Report

    Alphabet shares popped to $1,125.00 in after-hours trading on Monday but dropped below my quarterly pivot of $1,054.64 Tuesday morning.
  7. Financial Advisor

    What is Rule 48?

    Rule 48 is a tool used by market operators to expedite trading in the opening hour, during periods of extreme volatility.
  8. Investing

    Alphabet Falls in After-Hours on Earnings Miss

    The company missed earnings due to a stock-based compensation tax hit and increased cost of revenue.
  9. Insights

    Disney Shares Bounce After Execs Promise Earnings Growth (DIS)

    Disney shares traded more than 2% higher in the after-hour session Thursday after it reported Q4 earnings that missed estimates on both revenue and profits.
RELATED TERMS
  1. Trading Session

    A trading session is measured from the opening bell to the closing ...
  2. Close

    The close is the end of a trading session in financial markets, ...
  3. Opening Bell

    The opening bell is rung on the trading floor to signify the ...
  4. Overnight Trading

    Overnight trading refers to trades that are placed after an exchange’s ...
  5. Opening Cross

    Opening cross is a method used by Nasdaq to determine the opening ...
  6. Electronic Communication Network (ECN)

    An electronic system that attempts to eliminate the role of a ...
Trading Center