The U.S. stock market is open every day from 9:30 a.m. EST to 4 p.m. EST. However, advancements in technology have made the dream of a 24-hour stock market close to reality. Outside of regular trading hours, investors can now engage in extended-hours trading, which includes both pre-market trading and after-hours trading. Although after-hours trading is convenient, it’s also a type of trading that carries a special set of risks.
What Is After-Hours Trading?
If you follow financial news, you might notice that after-hours stock quotes are often different than the closing prices of stocks during regular market hours. This is due to investor activity in the after-hours trading market. Although the vast majority of stock market trading is performed during traditional market hours, investors looking to buy or sell stock after the market closes might still be able to execute trades. Volume is typically light after-hours, however, so if you’re looking to trade, you’ll generally have the best luck with large, liquid names. Some stocks don’t trade at all in the after-hours session.
How After-Hours Trading Works
Many popular brokers, including TD Ameritrade and Fidelity, offer investors the chance to buy and sell stocks in the after-hours session. However, available trading times vary slightly from broker to broker. Fidelity, for example, offers AHT from 4 p.m. EST to 8 p.m. EST., whereas Schwab’s window runs from 4:05 p.m. EST to 8 p.m. EST, with orders executed between 4:15 p.m. EST and 8 p.m. EST.
Just like during regular market hours, supply and demand rule the after-hours market. If there are more buyers than sellers in the after-hours session, stock prices will trend higher and vice versa. One indication of how the after-hours market is doing is the Nasdaq 100 after-hours indicator, which is similar to the live Nasdaq 100 index price you’ll see while the market is open.
Read This: Best Brokers for Free Stock Trading
Risks of After-Hours Trading
One of the main benefits of trading during regular market hours is the liquidity it offers. As billions of shares of stocks trade hands every day during market hours, most stocks offer orderly trading patterns and give investors the ability to get into or out of a stock at the then-current price.
In the after-market session, however, liquidity typically drops dramatically. With fewer participants, stock price movements can be greatly exaggerated. A lack of liquidity makes it harder for investors to get their desired price, or even to get their order executed at all. Other risks to trading in the after-hours include higher volatility, wider spreads and market-moving news announcements.
Another risk is the lack of consolidated quotes in the after-market. When the market is open, you’ll see the best available price to buy or sell a stock. In the after-market, you might only see limited quotes, with higher prices available from other brokers.
Click to see the best 15 stocks for beginners to try this year.
More on Investing