How to Trade After Hours

Wouldn’t it be grand if you could just trade whenever you please?

Unfortunately, things aren’t that simple. The stock market is open only during a certain time of the day. And while this might seem a bit antiquated, it helps keep things orderly and as balanced and predictable as they can be.

So, what should you do if that timeframe simply doesn’t suit you? The fact of the matter is, regular market hours are when most of us are busy at work. The answer is quite simple – you can trade after hours. ✅

Trading outside of regular market hours is a relatively new phenomenon – it has been available to retail investors for just a little over 20 years. Trading after hours is a different ballgame – there’s less liquidity, more volatility, and a lot less action than what you’re most likely used to. Even so, there are big moves in price in the after-hours market.

If you know what you are doing and play your cards right, it can help increase your gains or save you from losses. Nowadays, a vast majority of the best brokerages offer this feature. Although the minutiae of after-hours trading depend on specific brokerages, we’re going to be covering after-hours trading in general – what it is, how it works, and how you should approach it.

Just a word of warning before we get started – the after-hours market is suited to short-term trading, and even more to the point, navigating that market requires quite a bit of skill. If you’re a novice trader, it’s best to steer clear of this stuff for now – but if you’re not, let’s get down to business.

What you’ll learn

• What is After Hours Trading?
• Why is After Hours Trading a Thing?
• How Does After Hours Trading Work?
• Pros and Cons
• After Hours Trading Schedule
• The Impact on Opening Prices
• Tips for Trading After Hours
• Conclusion
• Trading After Hours: FAQs
• Get Started with a Stock Broker

What is After Hours Trading? 🔎

A trading session is the period of time when a stock exchange is open. This, of course, depends on the particular exchange in question, but we’ll use the most obvious example – both the NYSE and NASDAQ are open from 9.30 AM to 4.00 PM Eastern time. During that time, it’s business as usual – trades are placed, bets are made, and investing happens.

So, once the bell rings, and 4.00 PM Eastern rolls around the corner, everything stops, right? Nope, of course, it doesn’t – the market never sleeps. After the regular trading session ends, the after-hours market opens, and after-hours trading commences.

Now, what is after-hours trading? And how does it function, seeing as how stock exchanges close at 4.00 PM? Well, to explain that we’re going to have to explain electronic communication networks or ECNs.

An ECN is a computerized system that matches potential buyers and sellers to each other directly and automatically – without engaging with a traditional stock exchange in any way. This allows for safe, fast, and anonymous trading across the globe.

The first ECN, Instinet, was founded way back in 1969. For a long time, ECNs and after-hours trading were available only to institutional investors and extremely high net-worth individuals. 

However, by the turn of the century, or mid-1999 to be more precise, the rapid expansion of the internet made ECNs much more available and accessible to your regular, average-joe retail investor.

After-hours trading in the U.S. happens from 4.00 PM to 8.00 PM – and there’s also a pre-market period that lasts from 4.00 AM to 9.30 AM. Now that we’ve covered what after-hours trading is, let’s move on to the natural questions that follow – why it exists, how it works, and how it can benefit you.

Why is There After Hours Trading? ⏰

So, why is after-hours trading a thing at all? Or to put the question in a slightly different way, if after-hours trading exists, why not simply extend when the major exchanges are open altogether? Why are opening and closing times a thing?

Well, first of all, they’re a holdover from when things were still done in person – when people had to be in the same place to buy and sell stocks. But even now when that is no longer necessary, having set times when the exchanges open and close helps keep things orderly. Those that want to buy and those that want to sell know exactly when to “meet”, and when everyone else will be ready.

But the world is a lot more interconnected now. Although they are based in the United States, the NYSE and NASDAQ are the favored exchanges of millions worldwide – with up to 40% of corporate equity in the U.S. being owned by foreigners. There’s a lot of interest from abroad – and sometimes, the differences in time zones just can’t be overcome.

More to the point, after-hours trading is simply a convenient response to real needs. The decisions that investors and traders want to make can’t neatly fit into that 9.30 AM to 4 PM window.

And the stock market doesn’t exist in a vacuum or a bubble – it’s connected to the real world, and the fact of the matter is that important things that can and do have an effect on investments happen all the time. Press releases, important political events, and other major events don’t happen in an orderly fashion or on a fixed schedule – and traders and investors have to be able to react as soon as possible.

How Does After Hours Trading Work? 🏗

The exact workflow of after-hours trading will depend on which stock broker you choose. A vast majority of brokerages offer after-hours and pre-market trading – but just to be on the safe side, check if your brokerage does.

There’s no need to open another account for after-hours trading. Some brokers require that you let them know if you intend to trade after hours during the initial account opening procedure, but this isn’t an industry-standard practice. Others allow you to specifically request access to after-hours trading at any time.

With some brokerages, you can just seamlessly continue trading after regular market hours have ended – with others, you have to either select an option allowing after-hours trading in the platform settings and some even require that you select an option allowing trading outside of regular hours for each stock or security individually.

So, to boil it down to the basics – there are no hard and fast rules as to how brokers approach after-hours trading. The process will depend on your brokerage of choice – but there is a silver lining in that getting access to after-market hours isn’t complicated or time-consuming with any of the leading stock brokerages in business today.

The most important thing to keep in mind is that the actual amount of time you’ll be allotted for after-hours trading isn’t universal. Some brokerages, like Vanguard, don’t offer pre-market trading – others, like Robinhood, offer shorter sessions (4 P.M. to 6 P.M. in the case of Robinhood).

Also, don’t forget to check out your broker’s policy regarding fees and commissions for trading outside regular market hours. And last but not least, know ahead of time what can be traded after-hours with your broker of choice – for example, IG, a popular brokerage, only allows clients to trade only about 70 assets after hours.

The Good and the Bad with After Hours Trading 👍 👎

Advantages of After Hours Trading ✅

The biggest advantage of after-hours trading is that it allows you to react rapidly to recent events. What goes on in the news often has a huge effect on stock prices – and sometimes, you don’t want to wait for tomorrow to react. Making trades based on fresh information is an automatic leg up on the competition.

If the news is good, for example, you can come away with a much healthier amount of profit if you act quickly – and if it isn’t, selling off stocks whose price will tank can save you from losses. One of the most common ways to go about news trading is to wait for companies’ earning reports – and they are usually announced after regular trading hours.

Another advantage is convenience – the regular trading hours of the NYSE and NASDAQ are the times when most people are busy at work. This, obviously, isn’t ideal – a lot of people either can’t trade at all during regular hours or simply can’t devote enough concentration to do so properly. On top of that, a lot of traders are in different time zones – so regular trading hours just don’t work for them.

The after-hours trading sessions also see a lot of volatility – now, while this does imply added risk, volatility by itself isn’t inherently bad, and can create plenty of profitable opportunities. That mixture of plenty of volatility and potential catalysts for price movements in the form of media coverage can easily create the potential for large profits.

Risks of Trading After Hours ⚠️

So, what are the risks of after-hours trading? Well, they aren’t exactly in short supply – so let’s begin with the most obvious ones. For starters, after-hours trading sessions see a lot less activity on the whole. This means lower trading volumes, which means lower liquidity. 

Another consequence of low liquidity is that after-hours trading sees much wider bid/ask spreads than trading during regular hours does – meaning that it is a bit more difficult to secure gains and have your orders be executed at the price that you want. 

When you trade during regular hours, the prices that you see are a result of multiple venues offering their best – with after-hours trading, you’re limited to the ECN that your brokerage uses, so pricing can easily be worse than during regular hours.

After-hours trading used to be reserved for institutional investors only. The after-hours trading sessions are still dominated by large, institutional investors. That’s some stiff competition – they have resources at their disposal that you couldn’t even dream of – and an army of professional, expert traders at their beck and call.

We’ve already mentioned increased volatility – although not necessarily bad on its own, combined with low liquidity, it makes trading after-hours much riskier overall. You also have much less choice when it comes to order types – you’ll be limited to limit orders.

On top of that, after-hours trading usually comes at a price – and we mean that literally. A lot of brokerages charge added fees and commissions for after-hours trading – and although they aren’t usually high, they make an already difficult trading environment even more inhospitable.

After Hours Trading Schedule 📅

Okay – now that we’ve explained the basics of after-hours trading, let’s move on to actionable, real-life information. Because they’re the most popular stock exchanges, we’re going to cover the trading schedules of the NYSE and NASDAQ in this section.

There are two days when the major U.S. stock exchanges are open a little shorter – Black Friday and Christmas Eve, when the markets are open from 9.30 AM to 1.00 PM. On top of that, the stock exchanges are closed on New Year’s Day, Christmas Day, Thanksgiving, Labor Day, Independence Day, Memorial Day, Martin Luther King Jr. Day, President’s Day, and Good Friday.

How Does After Hours Trading Effect Opening Prices? 💡

If you’ve been trading for even a little while, you’ve probably already noticed that closing and opening prices for stocks don’t match up. That’s confusing enough on its own – but add in after-hours trading, and it’s pretty easy to become quite disoriented when thinking about what goes into opening and closing prices.

Let’s get the most fundamental stuff out of the way first – the opening price is the price of the first stock sold on a particular day, and the closing price is the price of the stock as seen in the last trade that was executed on a particular day.

So, does after-hours trading have an effect on opening prices? Well, to cut a long story short – not necessarily. Because the after-hours market is characterized by low liquidity and higher volatility, relatively sudden and noticeable spikes or drops in price are simply a consequence of those two factors.

However, the biggest changes in price during the after-hours market are caused by news. Earnings reports and media coverage can cause a sudden increase in buying or selling pressure – and if the news checks out and has long-term consequences for a business, then the next regular market sessions will reflect that too.

So, what sort of actionable intel can you get from this information? Wide bid/ask spreads, low liquidity, and high volatility make after-hours trading risky – too risky, in fact, for you to do so regularly. 

However, keeping an eye on the news allows you to react to sudden changes in price before the competition does – so if you’ve invested some money in a stock, keep an eye out for when they will announce earnings when they will hold annual meetings, and keep your ear to the ground regarding any important news that deals with the business in question.

What to Keep in Mind When Trading after Hours 👇

So, now that we’ve covered everything that you need to know about after-hours trading, let’s move on to concrete, actionable advice about the steps that you can take to reduce risks and increase the odds of success when trading outside of regular market hours.

Don’t Go Overboard 🚤

Because the after-hours sessions see a lot less liquidity, there is always a chance that your orders won’t be executed. On top of that, bid/ask price spreads are wider during the after-hours sessions – combine those two together, and it’s obvious that making optimal trades is much harder than during regular trading hours.

Don’t go overboard. If you see a good opportunity, by all means, take it – but the after-market sessions aren’t a good fit for making big moves. You don’t want to risk a large amount of capital in an environment that is characterized by the combination of high volatility and low liquidity.

Adjust Accordingly 🏂

The regular market sessions and the after-hours market have a set of subtle yet important differences. You can only use limit orders in the after-hours session – so you have to adjust your strategy accordingly.

On top of that, the amount of liquidity present after-hours is much lower. Depending on how you go about analyzing stocks, that could significantly alter how accurate the information you’re basing your decisions on is.

Know When to Trade 🎯

Although after-hours trading does give you a little more flexibility, it’s important to note that the vast majority of activity in the after-hours session occurs within an hour of the session beginning. Put another way, most of the action in the after-hours market will be done by 5.00 PM.

It is still possible to make good trades after 5.00 PM – but ideally, you should aim to take care of business when conditions are ideal. The one exception to this rule is if you’re planning on making trades based on news coverage of earnings reports – for those events, there are no hard and fast rules.

Set Reasonable Expectations ⭐️

Setting reasonable expectations is a rule that should be observed at all times – regular trading hours and after-hours trading alike. If you see a good opportunity, and you have good reasons to buy or sell a stock, do it – but keep your expectations realistic.

Oftentimes, the ability to trade after-hours can give us false hope – a false sense that maybe we can make up for the losses we’ve accrued during regular trading hours. If you give in to that sort of wishful thinking and irrationality, you’re only going to dig yourself a deeper hole.

If you’ve had a bad day, call it quits – you don’t have to make up for losses on the same day. Keep the lessons of trading psychology close to heart at all times, and you won’t be led astray.

Stick to Strategies That Work 🏆

Trading after-hours is riskier than regular trading – and that makes it all the more important to stick to proven, tried-and-tested strategies. 

If you’re still struggling to formulate a game plan that regularly pays off during regular market hours, don’t take the plunge into trading outside regular market hours. Knowledge of fundamental analysis, technical analysis, and stock chart patterns is a must when trading after-hours. Even if you’re trading based on recent news or earnings reports, remember – even a good earnings report doesn’t guarantee that a stock will rise after hours.

Remember That You’re Fighting an Uphill Battle 🏔

Although after-hours trading isn’t restricted to just the wealthiest among us and institutional investors anymore, it is still dominated by them. 

Always remember that you’re automatically at a disadvantage – they have capital, teams of expert traders, and proprietary algorithms. Take the wins that you can, and don’t expect anything crazy in terms of returns – otherwise, you’ll just be setting yourself up for disappointment.

Conclusion 🏁

Thanks for sticking with us until the end. After-hours trading might seem simple at first glance, but there’s a lot of subtle details that have to be fully understood if you’re going to trade successfully after regular market hours.

Trading after hours allows you to rapidly respond to events that can cause large swings in stock price. This is firmly in the territory of trading, not investing – so if you’re a novice, it’s best to keep on educating yourself. If you’re a novice trader, keep on perfecting that craft – but if you’ve already got some notches under your belt as a trader, then trading after hours can be an exciting, potentially profitable new avenue full of opportunities.

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$0

Commissions

$0

Vary

Account minimum

$500

$0

General

Best for

Beginners and mutual fund investors

Active traders

Highlight

Low fees

Huge discounts for high-volume trading

Promotion

Rating

9.5/10 Visit Firstrade on Firstrade's website

8.0/10 Visit Interactive Brokers on Interactive Brokers' website

Fees

Minimum initial deposit

TS Select: $2,000

TS GO: $0

$0

$0

Commissions

$0

$0

Vary

Account minimum

$0

$500

$0

General

Best for

Active options and penny stock trading

Beginners and mutual fund investors

Active traders

Highlight

Powerful tools for professionals

Low fees

Huge discounts for high-volume trading

Promotion

50% Off Future

Rating

8.0/10 Visit TradeStation on TradeStation's website

9.5/10 Visit Firstrade on Firstrade's website

8.0/10 Visit Interactive Brokers on Interactive Brokers' website

About the author

Tim Fries

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Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.