What is after-hour trading?

Views 46KAug 9, 2023

Key points

● after-hours trading refers to trades that traders can make after the time of the traditional trading market.

The ● after-hours trading market is generally illiquid and has a large bid-ask spread.

● after-hours trading enables the company to disclose significant information after normal trading hours can be reflected in the stock price in time, reducing the trading risk of investors the next day.

Know about after-hours trading

Stock markets around the world trade at different times. For example, the New York Stock Exchange and Nasdaq are open between 9:30 and 4:00 et. During this window, people can quickly buy and sell stocks according to demand.

However, sometimes investors want them to be able to trade at the end of normal trading. In this case, people can choose to use after-hours trading.

When trading in after-hours trading, the process is similar to traditional trading. Buyers and sellers buy and sell specific stocks. However, due to the small number of people trading after hours, the liquidity of the stock is generally poor, and the bid-ask spread is large, which affects the price of the stock. Many traders find that after-hours trading will produce more price fluctuations, rising and falling more, so they need limit orders.

The time of after-hours trading

In addition to the normal trading hours from 9:30 to 4:00 et, investors can choose to trade during pre-and after-hours trading. Pre-market trading can take place between 4:00 and 9:30 EDT, while after-hours trading will be between 4:00 and 8:00 et.

How is after-hours trading carried out?

After-hours trading used to be limited to high net worth investors. With the popularity of the Internet, everyone can carry out pre-trading and after-hours trading. As mentioned earlier, people interested in after-hours trading should plan to use limit orders because the market is more volatile. The purpose of the price limit order is to complete the order only at the price specified on the order rather than the current price. In other words, traders will specify the number of shares they want to buy or sell, as well as the price they want for the order. Then, the order will be executed only if the stock meets this target price. This helps protect traders in the event of a sudden rise or fall in prices. If this sudden rise or fall occurs when a person is trading, they may find themselves buying at a price they do not intend to buy, which may lead to serious losses.

How does after-hours trading affect the market?

Investors should have some understanding of how after-hours trading affects the normal stock market. Trades completed in the pre-market and after-hours markets do not automatically determine the opening price of a stock, although they may affect the opening price. The opening price is determined by the first purchase of the day. Therefore, just because a stock rises or falls sharply in after-hours trading, its opening price is not necessarily as high or low as it is in non-standard trading hours. However, the first trade of the day is often influenced by traders before the opening of the market. Investors will need to consider the impact of these trading times on stock prices on a case-by-case basis.

On the other hand, many traders find that trading at the close of the stock market does provide valuable information about the future performance of specific stocks. For example, some companies may release important information, such as their quarterly earnings reports, before the market closes. These reports can provide valuable information on how current company stocks react to the news, thus helping traders better know how to invest in the company.

Disclaimer: The above content does not constitute any act of financial product marketing, investment offer, or financial advice. Before making any investment decision, investors should consider the risk factors related to investment products based on their own circumstances and consult professional investment advisors where necessary.