Trading During Extended Hours

Trading that is done after the market closure is called after-hours trading.

During extended trading hours, investors can buy and sell securities.

When trading is done after regular hours, communication is done through electronic communication networks. During after-hours trading, the traditional stock exchange isn’t used to match potential buyers and sellers.

Trading during extended hours is conducted by electric networks. The drawback of such trading is that it is limited in volume when compared to regular trading hours. 

In this article, we will discuss trading during extended hours and how it works? 

What is Extended Hours Trading?

Trading done either before or after specific trading hours without using a traditional stock exchange is called extended hour trading. The benefit of this type of trading is that even a retail investor can place orders outside of regular exchange hours. It allows investors to quickly react to events and news that occurs after the stock exchange’s closure. 

Trading during extended hours has some limitations, such as limited day orders and lower liquidity, which makes market order risky. Some brokers only allow trading on RegNMS securities. You may face off-limits while trading over the counter securities, some options, and many types of funds. 

What Are the Extended Trading Hours?

Extended trading hours mostly occur right around the regular hours. The main reason behind this is that most events and news that affect investors occurs shortly before or after regular hours. Investors in the USA start trading at 4:00 a.m., and the extended hour occurs between 8:00 a.m. and 9:30 a.m. EST. 

Similarly, after the closure of stock exchanges, investors can trade until 8:00 p.m. In fact, most extended trading occurs before 6:30 p.m. If any major news or event made entry before or after exchange hours, then during extended hours, there will be more trading volume. You may witness a significant trading volume in markets like EFTs during extended hours, but other stocks don’t follow much this practice. 

Risks of Extended Trading

The US SEC has highlighted some major risks associated with extended trading. 

  • Large Spreads
  • When the market volume is less, it can result in large spreads. It can significantly affect market prices, and it becomes difficult to execute orders at a favorable price. 

  • Limited Liquidity
  • During extended hours, there will be less trading volume than regular stock hours. So, it’s not an easy job to execute trades because some stocks may not trade during extended hours. 

  • Increased Volatility  
  • When there are less trading volume and large spreads, it creates an environment of high volatility. The chances of a sudden increase in prices during the short amount of time are higher. 

  • Professional Competition
  • Investors that take part in extended trading are mostly institutional investors, such as mutual funds. Without any doubt, they have access to more resources than you, so while trading during extended hours; there will be more competition than regular hours. While thinking about extended trading, take this factor into account. 

  • Uncertain Price
  • When you trade outside of regular hours, there will be more uncertainty in price. There will be more difference in price during extended hours. 

    Extended Trading Hour Opportunities 

    In any business or trade, you will have to take risks to be successful. You can convert risks of extended trading into opportunities by the right decision and action. When investors trade during extended hours, it gives them an opportunity to react to news and events quickly. When a company announces poor earning, you can quickly sell your position instead of holding it. When the exchange opens again, there will be more selling, and the price can be much lower. 

    Timings of Extended Hours Trading

    The timing of trading varies from country to country, but you get more time to trade during extended hours. Generally, in the USA, markets remain open from 9:30 a.m. to 4:30 p.m. EST during normal business days. Trading during extended hours, you can trade before and after regular hours. 

    Pre-market opens at – 30 minutes earlier, i.e., 9:00 a.m. EST. 

    After-hours trading – Mostly continues for two hours, i.e., 6:30 p.m. EST. 

    So you may have almost two and a half hours extra access every single business day. 

    Why Should You Trade During Extended Hours?

    As it is mentioned earlier, trading during extended hours can either go your way or against you. You will have to take risks to create opportunities. You can trade during extended hours because:

  • Earnings Announcements
  • Companies announce their quarterly earnings after the closure of the market. However, it depends on the outcome, but prices can move more than regular hours. So, while trading during extended hours, you can capture these opportunities quickly. 

  • Activity in Foreign Markets
  • Any activity in the Asian or European market can affect prices in the US markets. So, activity in these markets occurs after the core trading hours in the US. An extended hour trading allows you to capture the potential opportunity.  

    Conclusion

    Trading during extended hours can be beneficial if you can make good use of it. You can quickly react to major news and events during extended hours. There are lots of risks associated with extended trading. You may face the issue of high volatility, uncertainty in prices, less liquidity, and large spreads. 

    It can be vulnerable for traders during extended hours if they react to unreliable information. During extended hours, you will be competing with professionals so that the completion will be high. So, gain some experience by trading during regular hours and then test your skills in trading during extended hours. 

    There is a difference in stock market timings in different countries. If there is any activity in foreign markets, you can cash it and benefit from it. So, trading during extended hours can be beneficial, but it is risky as well. The major issue of extended trading is limited volume and large spreads. Some stock companies don’t allow trading in extended hours, but companies like EFT allow you to trade even during extended hours.

    Author
    Sky Hoon. Read Full Bio
    Website Owner, Twitter-er
    He has been trading since 2008. He started this blog to share the journey about option trading. He dabbled in stocks, bitcoin, ethereum (in Celsius Network), ETF (lazy Dollar Cost Averaging) and also built websites for fun. He used this as a platform to share my experiences and mistakes in trading, especially options which I just picked up.

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