Have you ever turned on the news and heard reports on how a company is doing in after-hours trading after a big earnings announcement? Have you wondered what after-hours trading actually is and how it works, and what risks are involved?
Here are some answers. Normal market hours are 9: After-hours trading, as the name implies, is a trading session that occurs after the markets close in which investors can place orders to buy or sell stock.
Together both sessions are referred to as extended hours trading. So how are trades executed when the major exchanges are closed? An electronic market is simply a service that matches up buy and sell orders. If there is, the trade is done, if not, then the order will not be filled. At Schwab, clients can place orders for after-market trading between 4: Commissions and settlement times are the same as for the regular session. There are, though, several differences between regular session trading and after-hours trading.
For example, in the after-hours session, not all order types are accepted. Traders can only use limit orders to buy, sell, or short. Also, after-hours orders are only good for the particular session in which they are placed and do not carry over into any other session.
The after-hours session offers extended access to the market. The after-hours session allows them to check out the current quotes and potentially place a trade at a more convenient time. Ability to react to news events: Many companies release earnings after the close of the regular session.
This same concept holds true for the pre-market session. Many economic reports, such as the significant monthly employment report, come out at 8: Many companies report earnings before the opening bell as well.
At Schwab, pre-market trades can be executed between 8 and 9: Ability to act more quickly to technical signals: For traders who rely on technical analysis-based trading strategies, the after-hours session can be very beneficial. Many technically-oriented traders use closing price and volume figures to calculate trading signals.
Once the signal is generated, the trader can place the trade immediately in the after-hours session without having to wait until the next morning when prices could be substantially different than where they were at the close of the regular session.
The below is an example of an after-hours trade. While trading in the after-hours session can offer opportunities, there are also unique risks to be considered. In the regular session, the quotes you see are consolidated and represent the best available prices across all trading venues. In the after-hours, on the other hand, the quotes are not consolidated. You may only see prices from one venue and these may not reflect the prices displayed in other electronic trading systems for the same security.
The prices of some securities traded in the after-market may not reflect the prices of those securities at the close or open of the regular session. Liquidity refers to the ability of traders to buy and sell securities easily without materially affecting prices. Generally, the more market participants there are and the more orders that are available, the greater the liquidity, allowing traders to get their orders executed quickly at competitive prices.
Liquidity can be substantially lower in the after-market session. This can lead to delays in execution, partial fills, or no fills at all. Also, some stocks may simply not trade after-hours. The spread is the difference between the bid the highest price offered by all buyers and the ask the lowest price offered by all sellers.
Because of generally lower liquidity, spreads tend to be wider in the after-market session then in the regular session. Volatility refers to the range of prices that occur in trading. Due to the lower liquidity and wider spreads in the after-market, volatility can be considerably higher than in the regular session. This could lead to inferior pricing on some trades. Lack of calculation of index values: For traders dealing with certain index-based products, the lack of calculation or dissemination of index values in the after-market could put an individual investor at a disadvantage to those professionals who have access to proprietary systems which can quickly calculate index values based on individual stock prices.
The decision to trade after hours depends, of course, on your investment goals, trading style, and risk tolerance. While trading in the extended sessions is not for everybody, for those traders who understand both the potential risks and opportunities, it is certainly an avenue to explore. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice.
The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. Securities and market data are depicted for illustrative purposes only, and should not be considered recommendations, offer to sell, or solicitations of offers to purchase any security. Past performance is no guarantee of future results. Any written feedback or comments collected on this page will not be published.
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Call M-F, 8: Important Disclosures The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. Orders can be placed between 8: ET and will be eligible for execution between 8: Orders can be placed between 4: ET and will be eligible for execution between 4: Many order types and restrictions are accepted. All orders are only good for the particular session in which they are placed. There is no carryover into any following session.
In general higher trading activity means more liquidity and a greater likelihood of order execution. Lower trading activity may result in lower likelihood of order execution, plus wider spreads and greater price fluctuation.
The quotes you receive are consolidated and represent the best available prices across all trading venues. Market makers and specialists work to ensure customers get the best buy or sell prices displayed on NASDAQ and the exchanges. Quotes are not consolidated and represent the current prices available through the Electronic Market. As a participant in the Extended Hours Trading Network, the Electronic Market may also offer access to prices available on other participating Electronic Markets, but not necessarily all venues open for EHT.More...