After-Hours Trading

The majority of trading activity in the U.S. stock market occurs during regular trading hours, from 9:30 a.m. EST until 4:00 p.m. EST. However, most major brokerage firms facilitate after-hours trading for retail and institutional investors.

After-hours trading takes place from 4:00 p.m. EST to 8:00 p.m. EST.

Trading outside of regular hours is handled through electronic communication networks, or ECNs. ECNs allow traders to participate directly with one another while the exchanges are closed.

After-hours trading carries more risk, as less volume creates illiquid markets and wider bid-ask spreads and potential stock gaps, but it also allows investors to take advantage of unique opportunities after the market closes.

Typically after-hours trading is going to work just like the normal market would, only it will have some limitations compared to a traditional trading day. Just like the regular session, in after-hours trading buyers and sellers will be matched up according to prices and exchanges will be made. Your account will see trades after hours.

After-hours trading activity is typically greatest around events such as corporate earnings announcements.

Extended hours overnight trading is available through some brokerage firms in major ETFs for near-continuous trading.

4 risks you should be aware of before the close

Here are four risks that you need to be aware of if you want to participate in the after-hours market. As a beginner in the stock market or options market, I would highly suggest that you sit on the sidelines and watch before participating. It's always better to understand later then get creamed right now!

Liquidity - Liquidity is a real issue in after-hours trading. It's not going to have the same volume and market size that a typical trading day will have, so you'll have fewer entries and smaller order sizes.
Small Fish - Being that you're an individual trader, you're going to be going up against mainly large institutions and companies in the after-hours market. They clearly have leverage and the ability to push you out of the market with their pricing.
Wider Spreads - Since there is low liquidity in the after-hours market, the spreads on most of your stocks are going to be very wide concerning the bid and ask. So make sure you understand where the stock trading because it can quickly rally away from you or fall away.
Volatility - As I mentioned in the previous three points, since there is low liquidity, a lot of institutional traders and very wide spreads, you're naturally going to have an extreme amount of volatility in after-hours markets. Not to mention that you should always check for earnings announcements or company news. This can drive stocks higher or lower instantly after a company has announced something big.

FAQs

How does the after-hours market work?

Trading outside of regular market hours is handled through electronic communication networks, or ECNs. ECNs allow traders to participate directly with one another while the exchanges are closed. The majority of trading activity in the U.S. stock market occurs during regular trading hours, from 9:30 a.m. EST until 4:00 p.m. EST.

However, most major brokerage firms facilitate after-hours trading for retail and institutional investors. After-hours trading takes place from 4:00 p.m. EST to 8:00 p.m. EST.

Why do stocks spike after hours?

There are multiple reasons a stock may experience price changes after hours. Earnings reports are often released after the regular market hours end and may impact a stock’s price as investors react to financial statements and future guidance. News events and significant announcements can also impact stock prices and may occur after hours.

Does after-hours trading affect the opening price?

After-hours trading can impact the opening price of a stock. The overnight market activity may influence the price up or down, resulting in a price gap above or below the previous close.

How do the orders work in the after-hours market?

Some brokers have what are called "day orders," and those orders are only good for that day, probably including after-hours trading. If there isn't anybody who is going to match up with you in after-hours trading, then your order expires.

On the other hand, "good-til-cancelled" orders will stay working and can go beyond the same trading day and beyond after-hours and into the next day. So if you want orders that are going to go beyond after-hours, look for orders like "good-til-cancelled."