Everything you need to know about extended hours trading all on one infographic! With extended hours trading, you have more opportunity to profit!
What trader wouldn’t like some extra time to make trades after hours?
While the stock market is only officially open for trading from 9:30 a.m. to 4 p.m. Eastern time, there are still moves being made in the market both before it opens and after it closes. It’s called extended-hours trading.
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Extended-hours trading isn’t for the timid. It’s extremely volatile, and not well understood, even by established traders.
Even if you don’t intend to make extended-hours trades, every trader should at least have an understanding of this type of trading, as it can present information about the market and potential trading opportunities.
Table of Contents
What is Extended-Hours Trading?
Extended-hours trading is trading conducted on electronic exchanges, either after regular trading hours are over, or before they begin.
Regular Market Hours
- On a regular trading day, the hours are 9:30 a.m. until 4 p.m. Eastern time (ET)
- On a half day, they run from 9:30 a.m. until 1 p.m. ET
- On holidays, there is no trading at all (this includes pre or post market)
Extended-Hours Trading
- After-hours trading: Typically runs from 4 p.m. until 8 p.m. ET
- Pre-market trading: In the U.S. markets, this usually runs between 8 a.m. and 9:30 a.m. ET
Things To Know
Want to learn more about extended hours trading? Here are some of the things you need to know:
While extended hours trading might sound like something invented by millennials, it’s actually nothing new.
In the days of yore, before technology took over our lives, it used to be that extended hours trading was only accessible to high net worth investors and institutional investors like mutual funds.
However, the rise of electronic communication networks (ECNs) has allowed individual investors to participate in extended-hours trading.
The Rules
The rules for extended hours trading are different from the rules during normal trading hours. Every broker has its own policies regarding after-hours trading, and the rules can sometimes be very restrictive.
Be sure to do your homework. Check with your broker to review their specific policies regarding extended hours trading before you consider making trades.
The Benefits
Why consider trading in the post or pre-market hours if it’s so restrictive? Here are some of the benefits:
- Ability to trade beyond traditional time windows. Extended-hours trading allows for trades to be made at more convenient times.
- Capitalize on news and events. Extended-hours trading gives you the ability to capitalize on news and events outside of the regular trading session that drives price volatility.
- Learn about the market at large. Pre-market trading activity, in particular, provides a great indicator of the strength and direction of the market heading into the regular trading session.
This means that even if you’re not actively trading during these hours, you can still observe extended-hours trading activity and benefit from the information.
Consider looking at after-hours activity in the market on a regular basis, in addition to your usual technical and fundamental analysis!
The Risks
Extended hours trading isn’t without its fair share of risks. Here are some considerations to keep in mind:
- Thin liquidity. Because there’s less activity before and after regular market hours, the liquidity can be very thin.
- Wide bid/ask spreads. Even a quick look at extended hours trading activity on StocksToTrade will tell you that the market is much quieter outside of regular hours.
A lower volume in trading may result in a wide spread between bid and ask prices for a stock. Since the volatility is high during extended hours trading, this can lead to less than ideal pricing on some trades.
- Competition. Extended hours trading is dominated by professions. You’ll have some stiff competition with large institutions, such as mutual funds, who may have access to more information than individual investors.
News and Events to Look For
Investors can use news and events to better position themselves and hedge against risk before the next regular trading session. Here are some of the news and events to look out for to make more educated pre and post-market trading decisions:
Economic Indicators
Economic indicators are a main driver of price action in the pre-market trading sessions. These include gross domestic product (GDP), retail sales, weekly jobless claims, and the U.S. employment report.
As a point of interest, a majority of important economic releases are issued at 8:30 a.m. ET.
For instance, the U.S. employment report, issued by the Bureau of Labor Statistics on the first Friday of every month at 8:30 a.m. ET.
While 8:30 a.m. ET might not be terribly long before the market opens, a lot can happen in an hour and extended-hours trading allows traders to get in on the action ahead of the pack.
Earnings Releases
Earnings are released before the market open and after the market close. This can cause substantial price moves in the underlying stocks outside of regular market trading hours.
This is particularly true during what is called earnings season, which is actually not just one season but occurs quarterly.
Earnings season refers to the period one or two weeks after the end of each quarter, in which publicly traded companies release their quarterly earnings reports.
Most companies release their earnings in early to mid January, April, July, and October. So these times might see more activity during the pre and post market hours.
Major News Events
Major news events can also have a big effect on the market that can make traders want to enter trades out of regular market hours.
News and announcements of major geopolitical events are often reported after regular trading hours, or over the weekend.
Wars and natural disasters are examples of unexpected events that can take the market by surprise at any time.
Conclusion
Extended-hours trading can present opportunities for traders, but it comes with a hefty dose of risk due to thin liquidity and low trading volume.
The many unknowns and sometimes restrictive broker policies on extended-hours trading can make it a technique that is better suited to more advanced traders.
However, even as a new trader, you can still benefit from extended-hours trading. You can gain knowledge about the market during this time that can help you form well thought out trading plans so that when the market opens, you’re ready to pounce on the best opportunities ahead of the curve.
Have you tried extended-hours trading? Leave a comment below.