How After-Hours Trading Affects Stock Prices

after-hours trade refers to trade that occurs after the market closes. It allows investors to buy and sell securities outside of even trade hours. Trades in the after-hours session are completed through electronic communication networks ( ECNs ) that match potential buyers and sellers without using a traditional broth exchange .

Key Takeaways

  • After-hours trading occurs after regular market hours.
  • Potential buyers and sellers are matched by electronic communication networks (ECNs) rather than traditional markets. 
  • After-hours trading is more volatile and riskier than trading during the exchange’s regular hours because of fewer participants; as a result, trading volumes and liquidity may be lower than during regular hours.
  • Due to after-hours volatility, the opening price for a stock on the following day may be quite different from the price at which it closed the previous day.

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Can I Sell A Stock At The After-Hours Price?

How after-hours trading Works

Most investors know that the major stock certificate exchanges have standard trade hours—set periods each day when trade occurs through the exchange. The New York Stock Exchange ( NYSE ) and Nasdaq in the United States trade regularly from 9:30 ante meridiem to 4 p.m. ET, with the first trade in the morning creating the opening monetary value for a stock and the concluding trade at 4 post meridiem providing the day ’ s close price. But trade besides occurs outside of those times .

deal outside regular hours has been around for a hanker time, but it was once only the world of high-net-worth investors and institutional investors like reciprocal funds. however, the emergence of ECNs has enabled individual investors to participate in after-hours trade. fiscal Industry Regulatory Authority ( FINRA ) members can voluntarily enter quotations during after-hours sessions, but they are required to comply with all applicable limit order security and expose rules ( the Manning Rule and the U.S. Securities and Exchange Commission [ SEC ] order-handling rules ) .

The three stock trade sessions

There are actually three markets in which shares can be traded :

  • The pre-market trades from 4 a.m. to 9:30 a.m. ET.
  • The regular market trades from 9:30 a.m. to 4 p.m. ET. 
  • The after-hours market trades from 4 p.m. to 8 p.m. ET.

The pre- and after-hours markets function in the same manner as the even market in that the shares are traded between parties at an agreed-upon monetary value. In other words, the price you will receive is the price that person in the after-hours market or pre-market is willing to pay .

Stock price differences during extended-hours trade

Because there are fewer participants than there are during regular trade hours, pre- and after-hours markets will by and large have less fluidity, more volatility, and lower volume. This can have a solid impact on the price that a buyer or seller ends up receiving for their shares, so it is standard practice to use a limit order on any shares bought or sold outside normal trade hours .

typically, price changes in the after-hours marketplace have the same effect on a banal that changes in the regular market do : A $ 1 increase in the after-hours market is the lapp as a $ 1 increase in the regular market. consequently, if you have a lineage that falls from $ 10 ( your purchase price ) to $ 9 during the regular day ’ mho trading school term, but it then rises by $ 1.50 to trade at $ 10.50 in the after-hours market, you will have experienced a $ 1 loss during the day ’ second session ( from $ 10 to $ 9 ), but because prices rose $ 1.50 in after-hours trade, you would be sitting on a $ 0.50-per-share gain .

however, when the regular market opens for the adjacent day ’ randomness trade ( when most individual investors will have the opportunity to buy or sell ), the stock may not necessarily open at the lapp price at which it traded in the after-hours market .

For exemplar, if a company releases a upstanding quarterly earnings report card after market close, its stock price may increase in the after-hours market. But when institutional and retail investors have parsed through the details of the earnings report, they may discover that the party ’ s performance was not deoxyadenosine monophosphate impressive as it foremost appeared. As a solution, sell orders may outnumber buy orders at grocery store open, and this sell pressure may cause the broth to open at a price well below the level at which it traded in the previous day ’ south close or its after-hours marketplace .

The price changes seen in the after-hours marketplace are useful for showing how the commercialize reacts to newly data 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 following regular school term opens .

ECNs and after-hours deal

In the past, the average investor could entirely trade shares during regular market hours ; after-hours trade was reserved for institutional investors. however, today ’ s markets are more open than ever, and individuals are free to trade in the extended-hours sessions aided by the proliferation of the Internet and ECNs. This has been a step toward a position in which stock traders are able to make trades 24 hours per day. In 2018, TD Ameritrade adapted its platform to allow for 24-hour trade of certain exchange-traded funds ( ETFs ), another step in this direction .

Investors can only place limit orders ( and not grocery store orders ) to buy or sell shares in the after-hours market. The ECN then matches these orders based on the prices set in the specify orders. The use of limit orders reduces the risk of getting “ filled ” at an undesirable price, which is an important consideration in the after-hours market due to lower deal volumes and therefore relatively broad bid-ask spreads. 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 terminus ad quem order .

When Can I Trade in the After-Hours Market?

after-hours trade is available from 4 to 8 p.m. ET. Pre-market trade is available from 4 to 9:30 a.m. ET .

How Can I Trade in the After-Hours Market?

You would trade good 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 holy order to buy or sell the store, quite than the kind of grocery store order that you might place during regular trading. Be mindful that bid-ask spreads may be wider than they are during even trade hours, and banal monetary value moves can besides be more fickle .

Why Would an Investor or Trader Want to Trade in the After-Hours Market?

numerous companies release quarterly earnings reports after market close. occasionally, market-moving newsworthiness besides hits the news wires after regular trade hours. The ability to react to these developments outside of regular hours is invaluable for investors and traders, particularly if they want to exit a long or short-change position. A trader with a long situation, for example, may be uncoerced to accept a less-than-ideal price in the after-hours commercialize to close it out at a loss, rather than take the risk of leaving the situation overnight and incurring larger losses the adjacent day .

Why Are Stock Prices More Volatile in After-Hours Trading?

The number of participants in after-hours deal is a fraction of those during regular commercialize hours. Fewer participants means lower trade volumes and liquidity, and hence, wider bid-ask spreads and more volatility .

If My After-Hours Order Is Not Filled, Will It Carry Over to the Next Day’s Trading?

after-hours orders are alone good for that school term, so if your limit holy order has not been executed, it will be canceled, and you will have to put in a new order for the adjacent day ’ s regular trade seance.

The Bottom Line

Though 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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