What is 'Extended Trading'

Extended trading is trading conducted by electronic exchanges either before or after regular trading hours. Such trading tends to be limited in volume compared to regular trading hours. Pre-market trading in the United States usually runs between 6:00 a.m. and 9:30 a.m. Eastern Time and after-hours trading typically runs from 4:00 p.m. to 8:00 p.m. Eastern Time.

BREAKING DOWN 'Extended Trading'

Extended trading has become increasingly popular over the past decade as investors have embraced electronic trading and financial markets have become globalized. Electronic Communication Networks – or ECNs – have democratized extended hours trading and even retail investors have an opportunity to place trades outside of regular hours. Extended trading lets investors act quickly on news and events that occur when the market is closed.

Most brokers require traders to enter limit day orders during extended trading sessions since the lack of liquidity makes market orders impossible in some cases. In addition, most brokers only permit the trading on Reg NMS securities. Over-the-counter securities, many types of funds, some options, and other markets may be off-limits during extended trading hours.

Extended Trading Hours

Extended trading hours depend on the securities exchange and market regulations. In addition to these set rules, the majority of trades tend to occur right around regular hours trading. This is because most news that affects investors occurs either shortly before or shortly after the market opens or closes.

Investors in the United States can generally start trading at 6:00 a.m., but the majority of trading occurs between 8:00 a.m. and 9:30 a.m. Eastern Time. Similarly, investors may trade until 8:00 p.m. after the market closes, but the majority of trading occurs before 6:30 p.m.

The U.S. options and futures markets tend to have different trading hours depending on the underlying assets, while the foreign exchange (forex) market operates 24 hours per day.

Extended Trading Risks

The U.S. Securities and Exchange Commission (SEC) highlights several risks associated with extended trading, including:

  • Limited Visibility: Some brokers don’t provide quotes or route orders through any ECN, which means that you may not be getting the best price. Ask your broker if they route orders to other ECNs for the best price.
  • Limited Liquidity: Extended hours have less trading volume than regular hours, which could make it difficult to execute trades. Some stocks may not trade at all during extended hours.
  • Large Spreads: Less trading volume often translates to wider bid-ask spreads, which can adversely affect the market price for execution, making it harder to execute orders at favorable prices.
  • Increased Volatility: Less trading volume often creates an environment for greater volatility given the wider bid-ask spreads.
  • Uncertain Prices: The price of a stock trading outside of regular hours may not closely match the price during regular hours.
  • Professional Competition: Many extended trading participants are large institutional investors, such as mutual funds, that have access to more resources.

The Bottom Line

Extended trading has become increasingly popular over the past decade by giving investors a way to capitalize on information that falls outside of regular trading hours. Pre-market trading in the United States usually runs between 6:00 a.m. and 9:30 a.m. Eastern Time and after-hours trading typically runs from 4:00 p.m. to 8:00 p.m. Eastern Time. One of the greatest risks for extended trading investors to consider is the variance in the market price of execution in extended hours trading versus regular hours.

RELATED TERMS
  1. Trading Session

    A trading session is measured from the opening bell to the closing ...
  2. Volume of Trade

    Volume of trade is the total quantity of shares or contracts ...
  3. Opening Price

    The opening price is the price at which a security first trades ...
  4. Average Daily Trading Volume - ...

    The Average Daily Trading Volume (ADTV) is the average amount ...
  5. Open Outcry

    A vanishing method of trading at stock or futures exchanges involving ...
  6. Batch Trading

    Batch trading refers to an accumulation of orders that are executed ...
Related Articles
  1. Investing

    The Nasdaq Pre-Market: What You Need to Know

    Curious about Nasdaq pre-market or extended-hours trading? Here's a quick guide.
  2. 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.
  3. Trading

    These Are The Best Hours To Trade the British Pound

    The best times to trade the British pound are centered around economic releases at 1:30 am, 2:00 am, 8:30 am and 10:00 am United States Eastern Time.
  4. Investing

    The Opening Cross: How Nasdaq Stock Prices Are Set

    Learn how the opening cross auction process determines prices of Nasdaq-listed securities at market open to ensure liquidity by matching buyers or sellers.
  5. Trading

    These Are The Best Hours To Trade the Euro

    Six popular currency pairs and numerous secondary crosses offer euro traders a wide variety of short- and long-term opportunities.
  6. Trading

    ECN Credits: Let Your Broker Pay Your Trading Fees

    Altering your entry and exit strategy could save you a lot of money in fees. Find out how to pad your bottom line.
  7. Small Business

    Are We Becoming 24-Hour Workers?

    Many employees are working more than 40 hours a week, and even when they’re not physically at work, they’re still mentally and digitally connected.
  8. Trading

    Should you trade forex or stocks?

    Deciding which markets to trade can be complicated, and many factors need to be considered in order to make the best choice. Learn how.
  9. Trading

    How to Tackle Intraday Volume

    Measure the flow of intraday volume to estimate the emotional intensity of the crowd.
RELATED FAQS
  1. Trading hours of world's major stock exchanges

    Learn about stock exchange trading hours, the opening and closing times of some major global stock market exchanges, and ... 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. 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 >>
Trading Center