After-hour trading is stock trading that occurs after the normal close of the trading session. Ordinarily, stock trading begins at 9:30 am ET and ends at 4 pm ET, Monday through Friday. The after-hours trading period begins following the close of regular trading at 4 pm and ends at 8 pm. Trading after hours may appeal to investors who have limited time to trade during the day or want to take advantage of overnight market movements.
If you’re new to trading stocks or even if you know some of the investing basics, aftermarket trading can still be a confusing concept to understand. Understanding what happens with the stock market after hours can help answer those questions.
Why Is Access to After-Hours Trading Important?
After-hours trading allows investors to respond to news and events that occur after regular stock market hours. This can be important because it will enable investors to take advantage of opportunities that may not be available during regular trading hours.
For example, if a company announces a significant acquisition after the markets have closed, investors who can trade after-hours will be able to buy shares of the company before the news is reflected in the stock price during regular trading hours.
Market Hours Schedule
Stock exchanges operate on a regular schedule during which investors can buy and sell securities. The New York Stock Exchange (NYSE) and Nasdaq are open between 9:30 am and 4 pm ET. Most stock trading occurs during these normal business hours.
After-hours trading does not follow this schedule.
How Does After-Hours Trading Work?
After-hours trading is what it sounds like: buying and selling stocks after the stock market has closed. However, unlike standard hours trading, after-hours trading is conducted through computerized trading systems called electronic communications networks (ECNs). Traders generally access ECNs through their preferred brokerage.
After-hours trading generally lasts four hours, from 4-8pm ET on weekdays. However, the precise time of after-hours trading depends on the brokerage that an investor uses.
Pre-Market trading occurs from 4 to 9:30 am ET on weekdays. After-hours and pre-market trading is sometimes called “extended-hours trading.”
Some online brokerages take after-hours trading a step further and offer 24/7 stock trading. This allows investors to make trades during the gap between after-hours trading and pre-market trading. The advantage of 24/7 trading is that investors are not bound by the regular market hours schedule for making trades.
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Potential Advantages of After-Hours Trading
After-hours trading provides investors with several advantages over regular trading alone.
One of the benefits of trading later in the day is convenience. If you’re busy with other pursuits during business hours or live in a different time zone, this might be a more optimal time to buy and sell stocks.
Leveraging New Information
Another potential advantage is the opportunity to take action based on new information, such as a company’s earnings report or a major news event, without having to wait for the market to reopen.
Potential for Cheaper Prices
Investors can sometimes find lower prices for individual stocks or exchange-traded funds (ETFs) during after-hours trading. This may reflect lower competition since fewer people are trading, but it’s far from guaranteeing you’ll get better prices.
Cons of After-Hours Trading
Buying and selling stocks outside regular trading hours come with risks and disadvantages.
Fewer Transactions Happen After-Hours
There are fewer transactions happening after-hours than while the stock market is open, which can affect the market’s liquidity.
Since there are fewer people buying and selling stocks, finding someone who wants to trade at the price you have in mind can be challenging. Likewise, getting a hold of a stock you want can be hard when trading volume is low. The trade will be canceled if there is no counterparty available for a trade you want.
Prices Are More Volatile
Another drawback is that prices are more volatile after-hours. Although it’s normal for the stock market to fluctuate, you tend to see much wider swings in price after-hours than during the typical trading day.
This is partly a result of lower liquidity: Since fewer people are participating in the market, trades may significantly affect a stock’s price due to wider bid-ask spreads.
Stock price volatility can also result from many people reacting quickly to major news or announcements. A company’s share price can climb in response to a news event after-hours and then fall dramatically as soon as markets open. Prices adjust after more information becomes available, or investors get the chance to digest it more thoroughly. And with major ups and downs, of course, comes greater risk and potential for losses.
Best Prices May Differ
Another thing to consider is that you might not be able to confirm the best available price during after-hours trading. During regular hours, brokerages must offer the best possible price at that time. However, this doesn’t extend into after-hours, and the share price you see in one place may differ from the one you see in another.
After-Hours Trading vs Standard Trading
|After-Hours Trading||Standard Trading|
|Trading occurs between 4 and 8 pm ET||Trading occurs between 9:30 am and 4 pm ET|
|Trades conducted through ECNs||Trades conducted through stock exchanges and market makers|
|Trades may not be completed due to low volume and liquidity||Trades are generally executed quickly because of large trading volume and liquidity|
|Only certain stocks and ETFs available for trading||A wide range of assets, like stocks, ETFs, mutual funds, and options, are available for trading|
Is After-Hours Trading the Same Thing as Late-Day Trading?
Investors should be aware that after-hours trading differs from late-day trading. Late-day trading is an illegal practice in which mutual fund managers allow hedge funds to record some trades made after-hours as having happened right before closing during regular hours.
Late-day trading pushes up the mutual fund’s net asset value, which summarizes how much the fund is worth at the end of the trading day. When the net asset value (NAV) increases the following day to reflect those late-day trades, the hedge funds can sell the shares they bought at a higher price.
After-hours trading itself is considered ethical and is legal.
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Access to Features When Trading After-Hours
After-hours trading typically only allows limit orders. Limit orders generally protect investors from unexpectedly bad prices, which are more likely to occur during after-hours trading than standard trading.
Stop, stop-limit, or orders with special instructions are not usually accepted. Moreover, orders are typically only good for the after-hours trading session in which they’re placed; if a trade is not executed during the session, it is usually canceled.
Additionally, only certain stocks and ETFs are available for after-hours trading. Trading bonds, mutual funds, and options are not allowed during after-hours.
Is It Bad to Trade After Hours?
Trading stocks after hours is neither bad nor good. But whether it makes sense for you to engage in after-hour trading can depend on your risk tolerance and investment goals.
As mentioned, the stock market after hours can be more volatile than regular trading hours. You could expose yourself to greater risk by trading stocks after the closing bell. Increased volatility can also make it more difficult to gauge how likely limit orders are to be executed.
Pricing risk could also cause you to pay more for securities after hours than during the regular trading day. In that scenario, you’d get less value for your investment dollars. So it’s important to consider how much of your time you’re willing to devote to watching the after-hours market and how much risk you’re willing to accept.
Specialist recommend that only highly active traders participate in after-hours trading — not average investors who intend to hold onto their stocks for a long time. Most everyday investors would be wise to remember the old adage: “Time in the market beats timing the market.”
Does After-Hours Trading Affect Opening Price?
After-hours trading can affect a stock’s opening price. Buying and selling activity can influence a stock’s price during normal market hours. The same is true for aftermarket trading.
A stock could close at one price point during regular trading hours but have a different open price once the new trading day begins. Whether this price difference is negligible or significant depends on how much trading activity occurred after hours and what motivated the activity.
For example, price fluctuations between the regular day’s closing and the next day’s opening could be more substantial if investors get wind overnight that a company is planning a merger or has a scandal brewing. Likewise, if a company’s earnings miss expectations or the Federal Reserve makes an announcement about interest rates, those things could affect stock pricing after hours.
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Is After-Hours Trading a Good Indicator of Market Sentiment?
After-hours trading activity could help investors gauge where the market will start on the next trading day. But it’s important to remember that this is a short-term prediction at best, as pricing can change at a moment’s notice.
Investor attitudes and behaviors can quickly shift the market’s momentum and stock prices along with it. Again, something as simple as the release of an earnings report or the announcement of an acquisition could affect a stock’s price. So rather than focusing on aftermarket trading as a sole indicator of what a stock may do next, it’s important to look at the bigger picture.
If you’re primarily a day trader, learning some technical analysis basics can help you become more attuned to market trends and how to interpret them when making investment decisions.
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If you are a hands-on investor and want to experiment, exploring after-hours trading may be an additional way to make trades. However, for most investors who don’t actively manage their investments and want to minimize risk, there may be better strategies than after-hours trading. Instead, they may want to feel confident that they’re investing their money with less risk, building wealth for long-term financial goals.
A great way to start building a portfolio to meet long-term financial goals is by opening an online brokerage account with SoFi Invest®. With SoFi, you buy and sell stocks and ETFs with no commissions for as little as $5.
When does after-hours trading for SoFi start?
SoFi offers extended-hours trading, where investors can place limit orders during after-hours starting at 4 pm.
When does after-hours trading for SoFi end?
SoFi offers extended-hours trading, where investors can place limit orders after-hours ending at 8 pm.
What are the benefits of trading after-hours?
Some benefits of trading after-hours include the convenience of trading when the markets are closed and having the opportunity to make trades right after an important news event breaks.
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