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.
Most investors know that the major stock exchanges have standard trading hours—set periods each day when trading occurs through the exchange.
ET, with the first trade in the morning creating the opening price for a stock and the final trade at 4 p. But trading also occurs outside of those times. Trading outside regular hours has been around for a long time, but it was once only the domain of high-net-worth investors and institutional investors like mutual funds. However, the emergence of ECNs has enabled individual investors to participate in after-hours trading.
Financial Industry Regulatory Authority FINRA members can voluntarily enter quotations during after-hours sessions, but they are required to comply with all applicable limit order protection and display rules the Manning Rule and the U. There are actually three markets in which shares can be traded:. 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 that you will receive is the price that someone in the after-hours market or premarket is willing to pay. Since there are fewer participants than during regular trading hours, pre- and after-hours markets will generally have less liquidity, more volatility, and lower volume. This can have a substantial effect on the price that a buyer or seller ends up receiving for their shares, so it is wise to use a limit order on any shares bought or sold outside normal trading hours.
Typically, price changes in the after-hours market have the same effect on a stock as changes in the regular market: A one-dollar increase in the after-hours market is the same as a one-dollar increase in the regular market. For example, if a company releases a solid quarterly earnings report after market close, its stock price may increase in the after-hours market.
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 should not be relied on as an accurate reflection of where a stock will trade 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.
The day when stock investors will be able to trade 24 hours a day, seven days a week may not be too far away. Investors can only use limit orders , not market orders , to buy or sell shares in the after-hours market. The ECN then matches these orders based on the prices set in the limit orders. The flip side is that investors may not get their orders executed at all if the stock does not trade at the price specified in the limit order.
You would trade just like you would during regular hours, by logging into your brokerage account and selecting the stock that you wish to trade. The only difference is that you will have to use a limit order to buy or sell the stock, rather than a market order that you might use during regular trading. Be mindful that bid-ask spreads may be wider than they are during regular trading hours, and stock price moves can also be more volatile.
Numerous companies release quarterly earnings reports after market close. Occasionally, market-moving news also hits the news wires after regular trading hours. The ability to react to these developments outside of regular hours is invaluable for investors and traders, especially if they want to exit a long or short position. A trader with a long position, for instance, may be willing to accept a less-than-ideal price in the after-hours market to close it out at a loss, rather than take the risk of leaving the position overnight and incurring larger losses the next day.
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When Wish went public last December, it served over million monthly active users MAUs with its discount marketplace, which mainly enabled Chinese merchants to sell their products to overseas buyers. Your broker then sends your order to the ECN it uses for after-hours trading. The ECN attempts to match your order to a corresponding buy or sell order on the network.
If it can match your order, the trade is executed, and settlement times are the same as during regular sessions. After-hours trading comes with several risks not associated with trading on an exchange during regular trading sessions. The bottom line is that after-hours trading is possible and can help you react to earnings reports and other news that takes place outside of normal market hours.
However, each brokerage is a little different, so be sure to do your homework before getting started. Discounted offers are only available to new members. Stock Advisor will renew at the then current list price. Investing Best Accounts. Stock Market Basics. Stock Market. Industries to Invest In. Getting Started. Planning for Retirement. Retired: What Now? Personal Finance.
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