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What Is After-Hours Trading?

By Rebecca Lake · August 31, 2021 · 6 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?

After-hour trading is stock trading that occurs after the normal close of the trading session. Ordinarily, stock trading begins at 9:30 a.m. ET and ends at 4 p.m. ET, Monday through Friday.

The after-hours trading period begins where the regular trading day leaves off. 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.

Market Hours Schedule

Stock exchanges operate on a regular schedule during which investors can buy and sell securities. 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. Bond markets typically trade between 8 a.m and 5 p.m. Foreign exchanges typically have workday hours depending on their time zone.

After-hours trading does not follow this schedule.

How Does After-Hours Trading Work?

After-hours trading is pretty much what it sounds like: buying and selling stocks after the market has officially closed. After-hours trading lasts four hours, from 4 to 8 p.m. eastern time on weekdays.

In the past, after-hours trading wasn’t possible for retail investors, since institutional investors were the only ones who had methods of trading without being physically on the floor of the exchange. But increasingly, trades began taking place electronically, and more investors from around the globe were buying US 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 need a special status or to 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.

Recommended: How to Trade Stocks Online

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

Pre-Market Trading

Pre-Market trading occurs from 4 to 9:30 a.m. eastern time on weekdaysTogether, after-hours trading and pre-market trading are sometimes called “extended-hours trading.”

Some online brokerages are taking after hour trading a step further and offering 24/7 trading. This allows investors to make trades during the gap between after hours trading and premarket trading. The advantage of 24/7 trading is that investors are not bound by the regular market hours schedule for making trades.

Potential Advantages of After-Hours Trading

Convenience

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.

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. This can allow you to take advantage of opportunities ahead of other investors by entering a market-on-open order. This allows you to make a trade as soon as the market opens for regular trading hours.

Potential for Cheaper Prices

Finally, buyers can sometimes snag cheaper prices for individual stocks or exchange-traded funds after-hours. This may reflect lower 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.

Fewer Transactions Happen After-Hours

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. If there is no counterparty available for a trade you want, the trade will either get canceled or held until the next market open.

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 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.

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 one you see in another.

Is After-Hours Trading the Same Thing as Late-Day Trading?

No. 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.

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.

Recommended: What Is Market Manipulation?

After-hours trading itself is considered ethical and is legal.

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 it is during regular trading hours. That means you could be exposing yourself to greater risk by trading stocks after the market has closed. 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 end up paying more for securities after hours then you would 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.

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.”

Does After Hours Trading Affect Opening Price?

Yes. Buying and selling activity can influence which way a stock’s price moves during normal market hours. The same is true for aftermarket trading.

That means it’s possible that 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 companies are earnings miss expectations or the Federal Reserve makes an announcement about interest rates, those things could affect stock pricing after hours.

Recommended: 7 Factors That Determine Stock Price

Is After Hours a Good Indicator?

It depends. On one hand, after-hour trading activity could help investors gauge where the market will start on the next trading day. But it’s important to keep in mind that this is a short-term prediction at best, as pricing can change on a moment’s notice.

Investor attitudes and behaviors can very quickly shift the momentum of the market and stock prices along with it. Again, something as simple as the release of an earnings report or a small interest rate hike can send ripples through the market. 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.

Specifically, you may want to consider the stock’s most recent performance and trading volumes as well as overall market conditions. Whether the market is leaning bullish or bearish, for example, can influence what happens with stock pricing. If you’re primarily a day trader, learning some of the basics of technical analysis can help you become more attuned to market trends and how to interpret them when making investment decisions.

Recommended: Day Trading Strategies

The Takeaway

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 risky bets. Instead, they may want to feel confident that they’re investing their money with less risk.

A great way to get started is by opening an account on the SoFi Invest® brokerage platform. 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 competitive-cost way to reduce risk by holding a diversified array of assets.

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


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