Earnings

What Is After-Hours Trading and How Can I Start?

after-hours

After-hours trading allows you to trade after the market has closed.

This might be advantageous to traders who want to take advantage of an earnings event. Most earnings announcements are made after the market closes, and in some cases, before it opens. For traders who want to put on positions right after an earnings announcement, waiting until the market opens might be too late, as the big move will have already occurred.

Some people trade after hours because of their schedule, which may not allow them to trade during regular hours. Whatever the motivation is, after-hours trading is very different from trading during the regular day session.

Start here: Make sure you understand the stock market hours and what time the stock market opens.

After-Hours and Pre-Market Times

After-hours trading is also called extended-hours trading. It encompasses three different sessions. Times below are generic and differ by brokerage:

  • Pre-market: 7:00 a.m. to 9:30 a.m.
  • After-market: 4:00 p.m. to 8:00 p.m.
  • Overnight: 8:00 p.m. to 7:00 a.m.

After-market is the most popular by volume of the three sessions mentioned above, according to data from Nasdaq.com. To trade after hours, you’ll first need to check with your broker to make sure they offer extended trading.

The money in your brokerage account can be used to trade during extended hours. A different account is not needed.

You may find that certain stocks are not available during extended trading hours. The availability of stocks will also vary by brokerage. Bonds and options also may not be available.

Electronic Markets

During the regular day session, trade orders are consolidated to provide the most efficient pricing. In some cases, market makers help with the consolidation.

Extended-hours trading doesn’t have these advantages. Instead, everything is handled by electronic markets or ECNs (electronic communication networks). Not all ECNs are available during the extended sessions. If an order can’t be matched with an ECN, the order is canceled.

Additionally, the maximum order is 25,000 shares. There is no minimum.

Different Restrictions by Brokerage

Brokerages have restrictions in the form of order types and the hours that are made available to traders. For example, many brokerages only allow limit orders during extended sessions. This eliminates market and conditional orders. Any orders that are not filled during a session are canceled at the end of that session. Orders are only good for the session.

The hours you can trade during extended sessions also vary by brokerage:

  • Schwab:
    • Pre-market: 7:00 a.m. to 9:25 a.m ET
    • After-hours: 4:05 p.m. to 8:00 p.m ET
  • Fidelity:
    • Pre-market: 7:00 a.m. to 9:28 a.m. ET
    • After-hours: 4:00 p.m. to 8:00 p.m. ET
  • E-Trade:
    • Pre-market: 7:00 a.m. to 9:30 a.m. ET
    • After-hours: 4:00 p.m. to 8:00 p.m. ET
  • TD Ameritrade:
    • 24/5 trading: Sunday, 8:00 p.m. ET to Friday 8:00 p.m. ET

TD Ameritrade doesn’t break their extended-hours trading into sessions. Instead, you can continuously trade 24 hours a day from Sunday to Friday.

Risks with After-Hours Trading

Because fewer people trade during extended hours and there are fewer networks available, the volume is low. Depending on the instrument, there may be only a few trades during each session. This creates very large bid-ask spreads.

A bid-ask spread is the difference between the bid price and the ask price. The bid is lower than the ask in most cases. The bid is the best price at which someone is willing to buy shares. The ask, also called the offer, is the best price that someone is willing to sell shares.

How does this work in the real world, and what does it look like during extended-hours trading?

As an example, let’s say a stock last traded at $100 during the regular session. There’s lots of volume so the bid is $99.98, and the ask is $100.02. Someone holding the stock and who wants to get rid of it fast will sell at $99.98. This is called hitting the bid. They are getting a lower price than they potentially could have if they’d waited. For those who are more patient, they may get $100.00, $100.01, or $100.02.

On the other side, someone wanting to get shares now will hit the offer at $100.02, also resulting in not getting the best price. The more patient will get a lower price.

In extended-hours trading, the bid-ask for the above stock might be $99.00 and $101.00, or they may even be further apart. It really depends on volume. Using the examples from above, if the same two traders hit the bid and offer, they’ll get even worse prices. That’s assuming the order fills.

Options traders may find extended-hours trading impractical due to large bid-ask spreads. During the regular session, many options have fairly large bid-ask spreads. These spreads become exaggerated during extended-hours trading.

Extended-hours trading is not for everyone. You’re still going up against professionals that have better access to data, giving them an advantage even during extended hours. However, if you are looking to take advantage of an event that occurs outside of market hours, such as earnings, extended-hours trading allows you the fastest entry into the market.

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