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What Is After-Hours Trading?

December 19, 2019 · 5 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

What Is After-Hours Trading?

When you’re new to investing, many aspects of the process can seem confusing. There are all the foreign terms, from “expense ratio” to “bear market,” not to mention the plentiful acronyms, such as NASDAQ or ETF.

Even if you know some of the investing basics, it can be challenging to figure out what to invest in and how to go about it, given your goals and current market conditions.

Confusion about the investing process is one reason that 46% of Americans don’t own stocks, according to a 2017 report. Millennials are especially reluctant to jump in, with only about 20% investing in the stock market even though many have savings.

Lack of knowledge and fear have a lot to do with that: Two-thirds of young people between the ages of 18 and 25 say the prospect of investing is “scary” or “intimidating.”

That’s concerning news, since staying out of the market could potentially have a major negative impact on long-term financial health.

Keeping savings in cash in a typical savings account means the funds may lose value over time due to inflation.

On the other hand, money invested in the stock market over years and decades has the potential to grow significantly, thanks to the power of compound interest and the chance to capitalize on short-term downturns.

One of the concepts that’s most confusing to inexperienced investors is after-hours trading. If you want to beef up on your investing knowledge, here’s a primer on what it’s all about.

How Does After-Hours Trading Work?

After-hours trading is pretty much what it sounds like: buying and selling stocks after the market is officially closed. The New York Stock Exchange and NASDAQ are open between 9:30 a.m. and 4 p.m. Eastern time. Most trading occurs during these normal business hours. You may be wondering, “How long is after-hours trading?” It lasts four hours, from 4 to 8 p.m. Eastern time on weekdays.

Trading can also occur from 4 to 9:30 a.m. Eastern time on weekdays, which is called pre-market trading. Together, after-hours trading and pre-market trading are sometimes called “extended-hours trading.”

In the past, after-hours trading wasn’t possible, because everyone had to physically be at the stock market to buy and sell securities. But increasingly, trades began taking place electronically, and more investors from around the globe were buying U.S. stocks. In response, in the early 1990s , the two main American stock exchanges opened up to after-hours trading.

Anyone can engage in after-hours trading—you don’t have to have a special status or be a licensed broker. However, the ins and outs of how to trade after-hours can vary. Some brokerages may not allow you to buy or sell stock during this period or only permit it during narrower windows of time.

They may also have specific rules about what kinds of trading activities you can engage in outside of regular hours. You also typically cannot trade stock options after-hours.

After-hours trading is not the same as late-day trading. The latter 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.

This 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.

Potential Advantages of After-Hours Trading

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 for you to buy and sell stocks.

Another potential advantage is that you have the chance 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. This can allow you to take advantage of the opportunities ahead of many other investors.

Finally, buyers can sometimes snag cheaper prices for individual stocks or exchange-traded funds after-hours. This can be due in part to the fact that there’s less competition, since fewer people are trading, but it’s far from a guarantee that you’ll get better prices.

Cons of After-Hours Trading

Buying and selling stocks outside of regular trading hours comes with some risks and disadvantages. First, there are many fewer transactions happening after-hours than while the stock market is open.

Since there aren’t as many people out there buying and selling stocks, it can be hard to find someone who wants to trade at the price you have in mind.

Likewise, it can be hard to actually get a hold of a stock you want when there is a lower volume being traded.

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 there are fewer people participating in the market, the trades have a greater effect on price. It can also be a result of many people acting quickly in reaction 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. Often, 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.

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 are required to 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 one you see in another.

For the above reasons, it’s generally recommended that only highly active traders take part in after-hours trading—not average investors who intend to hold onto their stocks for a long time. The majority of everyday investors would be wise to remember the old adage: “Time in the market beats timing the market.”

Investing With SoFi Invest®

If you are a hands-on investor and want to experiment, you might be a good candidate to explore after-hours trading. Many people, however, don’t want to actively manage their investments and place overly risk bets. Instead, they may want to feel confident that they’re investing their money with less risk.

While all investing comes with risk, investors typically want to maximize their chances of growing their funds over time, especially if they’re earmarked for retirement. And they generally don’t want to spend a lot of time managing their portfolios.

With SoFi, you can choose from one of five automated investment strategies based on how conservative or aggressive you’d like to be. Each investment account includes between three and nine exchange-traded funds (ETFs), which offer a low-cost way to reduce risk by holding a diversified array of assets.

Your portfolio will be rebalanced automatically to make sure that it still matches the investment mix you want. And you’ll have complimentary access to a licensed financial advisor—who can even answer questions about after-hours trading.

Ready to put your money to work in the market? Get started with SoFi Invest today.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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