Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. After-hours trading starts at 4 p. Eastern Time after the major U. The after-hours trading session can run as late as 8 p.
Trading in the after-hours is conducted through electronic communication networks ECNs. After-hours trading is something traders or investors can use if news breaks after the close of the stock exchange. In some cases, the news, such as an earnings release, may prompt an investor to either buy or sell a stock. The volume for a stock may spike on the initial release of the news but most of the time thins out as the session progresses. The amount of volume generally slows significantly by 6 p.
There is a substantial risk when trading in illiquid stocks after-hours. Not only does volume sometimes come at a premium in the after-hours trading sessions but so does price. It is not unusual for the spreads to be wide in the after-hours. The spread is the difference between the bid and the ask prices. Due to fewer shares trading, the spread may be significantly wider than during the normal trading session.
In some cases, certain investors or institutions may choose simply not to participate in after-hours trading , regardless of the news or the event. This means that it is quite possible for a stock to fall sharply in the after-hours only to rise once the regular trading session resumes the next day at a.
Because volume is thin and spreads are wide in after-hours trading it is much easier to push prices higher or lower, requiring fewer shares to make a substantial impact. Since after-hours trading can have a significant impact on a stock's price , it's not a bad idea to put a limit order on any shares you intend to buy or sell outside of regular trading periods.
Nvidia Corp. NVDA earnings results in February are an excellent example of how after-hours trading works and the dangers that come with it. There are fewer market participants outside of standard market hours, so there will be limited liquidity for most stocks.
Additionally, not all stocks are available to be traded after hours, resulting in limited options. Even if a particular stock is available, again, the execution of a trade depends on the ECN finding a match for your order, which may not happen if there are fewer participants in the market.
Additionally, volatility can be an issue if many people are reacting to a news item at the same time that they learn more about the occurrence. Advances in technology have made trading after standard market hours available to more and more investors. With both post-market hours and pre-market hours open for trading, albeit in a limited way, investors can use ECNs, limit orders and further advice from their broker to make specific trades and take advantage of the time outside of the normal business day.
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This week was a rather volatile one for the investors in cryptocurrency miners. 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.
The number of participants in after-hours trading is a fraction of those during regular market hours. Fewer participants means lower trading volumes and liquidity, and hence wider bid-ask spreads and more volatility. While participating in after-hours markets can benefit investors and traders, the risks are significant.
Anyone participating in after-hours market activity should be mindful of these risks.
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