After-hours trading refers to the trading that occurs outside of the normal hours of the the stock market. The US stock market opens at 9:30 AM EST, and closes at 4 PM. After-hours specifically refers to the trading session from 4PM to 8PM. It essential to understand the pros and cons of trading after-hours.
Characteristics of After-Hours Trading
After-hours has significantly less volume and large spreads between the bid and ask price of stocks. Trading during after-hours is considered high risk because of the low liquidity, which means volatility can quickly increase. It doesn’t take as much size to move the market, and you will have difficulty entering and exiting larger positions.
Companies will often release their earnings reports during after-hours, usually sometime between 4:05-4:30 PM. After-hours trading is done through ECNs (electronic communication networks) which match buyers and sellers without an exchange. Some brokers will restrict trading for their clients during after-hours and pre-market due to the volatility. They may only allow you to place limit orders after the market closes.
Pre-market trading refers to trading session before the US stock market opens at 9:30 am EST. It typically begins at around 4am EST, and ends when the stock market opens at 9:30. Most of the the pre-market volume on stocks will come in at around 8 AM. Similar to after-hours, there is a lot less liquidity and bigger spreads on stocks, and is also considered to be high risk trading. Press releases and analyst reports will often be released during pre-market.
While trading during pre-market and after-hours is higher risk, you can also get huge rewards if you get on the right side of a trend. We do not recommend new traders trade during these periods, but once you get experienced you can attempt it. If you do trade outside of market normal hours, you want to be trading with smaller size do to the lower volume and wider spreads.
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