What Is After Hours Stock Trading?

Most people know the daily markets, such as the New York Stock Exchange, have a schedule both by the day of the week and an opening and closing time. What many do not know, and less take advantage of, is after hours stock trading also known as extended trading. By definition, any trades, meaning sales or purchases that take place outside the normal trading hours of the major markets is referred to as after hours trading. In the United States, after hours trading includes the pre-opening trading period in the morning and can be performed roughly 5 hours before the market opens and 4 hours after. Trading stocks during extended hours is not only legal, but can be lucrative if the investor is well versed in what it is he is trading. Until 1999 trading stocks after hours was limited to only large investment institutions and heavy traders. After this time the after hours market has since, due to pressure from equal opportunity seeking investors, is now open to all.

After Hours Trading And ECNs

After hours trading has existed only since 1975, and for only one reason: the advance of the computer and the creation of Electronic Communication Networks (ECNs). These so called ECNs process stock trades without the need for a person, or solicitor, to execute them. It’s all electronic. The ECNs place buyers with seller digitally, and when there is a match, the sale is executed. If there is no match than the sale will push to the next business day and be executed during normal market hours. By using the ECN networks, now most commonly operated by online stock brokerage firms, investors have access to the markets after they close and everyone has gone home. Much like using online banking to move money or pay bills after the branch is closed, so functions after hours trading.

Potential Advantages To After Hours Trading

There are potential advantages to trading stocks in the after hours market. After the markets close there are simply less people at the table buying, which can be an advantage, and in some cases also a disadvantage. The after hours markets let people capitalize on news and movements outside of the trading day. For example if a company announces earnings profits after hours, there is time for investors to buy in hoping for a big opening the next trading day. Likewise bad news travels fast when trading stocks after hours, meaning there could be large sell offs of stocks reporting bad news. All in all the after hours markets can be a good place to make some trades, but be warned as it can also be notoriously volatile.

What Is After Hours Stock Trading?

After Hours Stock Trading

After Hours Trading And ECNs

Potential Advantages To After Hours Trading

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