What Is After-Hours Trading and How Does It Work?

Learn about after-hours trading to decide if it's right for you.

By John Csiszar May 5, 2020 Stocks 101

Every weekday at 9:30 a.m. EST, a bell signals the opening of the New York Stock Exchange and the beginning of the trading session that runs until 4 p.m. EST. This is the period when most trading activity takes place. However, advancements in technology have made the dream of a 24-hour stock market close to reality. Trades can still happen before the exchange opens and after it closes.

Outside of regular trading hours, investors can engage in extended-hours trading, which includes both premarket and after-hours trading. Although after-hours trading is convenient, it’s also a type of trading that carries a special set of risks.

This guide to after-hours trading will cover the following topics:

What Is After-Hours Trading?
Can You Buy Stocks on the Weekend?
How After-Hours Trading Works
Who Is Allowed To Trade After Hours?
Risks of After-Hours Trading

What Is After-Hours Trading?

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 the market closes for the day; 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.

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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. Price changes that occur after-hours work in the same way as a price change that occurs during market hours. This means that a price change occurring at any time can affect the market and send investors clamoring to buy or sell specific stocks.

Can You Buy Stocks on the Weekend?

It is possible to place orders to buy stocks on the weekend because the electronic market is open all the time. However, after-hours systems work by matching buyers and sellers who have similar price requirements. There is less activity in the market after the stock exchanges close, so you may not be able to find a stock available in your price range.

How After-Hours Trading Works

Although many popular brokers offer investors the chance to buy and sell stocks in the after-hours session, available trading times vary slightly from broker to broker. Fidelity, for example, offers an after-hours session from 4 p.m. EST to 8 p.m. EST., whereas Schwab’s after-hours window runs from 4:05 p.m. EST to 8 p.m. EST.

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The rules governing after-hours trading differ from regular session rules, so trades are limited. Traders can use limit orders, but orders with special conditions aren’t allowed. This means that buyers and sellers specify the price they’re willing to accept. The computer then searches for available buyers and sellers with matching price demands.

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.

After-hours trading does not necessarily affect a stock’s opening price at the next regular trading session. In fact, the opening price can look dramatically different from the prices seen in the electronic market. This is especially true if the market reacted to a company announcement or news headline that could potentially impact a business or industry.

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Who Is Allowed To Trade After Hours?

After-hours trading takes place through an electronic market. Electronic markets work as order matching systems, pairing up individuals who want to buy stock with those who want to sell. Any investor with an online trading account held at a brokerage firm can trade during the available hours. Schwab, Fidelity and TD Ameritrade all offer this service.

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Risks of After-Hours Trading

After-hours trading appeals to some investors because it’s convenient, but it’s not without its share of risk. Investors should educate themselves about the risks and benefits before attempting to execute trades.

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 more difficult for investors to get their desired price, let alone have the order executed at all. Other risks to trading in the after-hours include higher volatility, wider spreads and market-moving news announcements.

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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, however, you might only see limited quotes, with higher prices available from other brokers. You’re also often competing with professional traders who tend to have more experience trading.

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This article has been updated with additional reporting since its original publication.