Consequences and Opportunities of Extended Hours Trading

Written by 
Polina Median
/
April 8, 2022

Answer: Samsung

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extended market hours how to trade at pre-market relax

In the digital age, it is unusual to see platforms and operational systems working in a regular business schedule. However, the stock exchange has its working hours: in the US trade starts at 9:30 AM and closes at 4 PM. Of course, there are certain solutions to trade outside of these hours.

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Modern electronic systems help to keep trading during extra hours which seems reasonable and convenient but has its pros and cons. If you’re a traveling investor and you want to trade across the globe — keep in mind the option of extended market hours. 

What is Extended Hours Trading?

From 9 to 4 the stock exchange in the US is open for trade. However, pre-market trading may start from 4-4:30 a.m. and some additional after-hours allow trading up to 7:30-8 PM. This opportunity helps investors to react when some unpredictable events happen and take action. Keep in mind that operations in, for example, the Asian market may have some influence on the US market and extended hour trading may bring you additional opportunities. However, usually, the volume of the operations is much lower compared to regular hours, because market makers are not allowed to trade and they comprise a lot of volume on the market. The idea of extended hours is relatively new In 1991 The New York Stock Exchange prolonged trading hours to stay on trend in a globalized world where it was too hard to compete with other markets offering more hours. However, still, the majority of the operations are being conducted from 8 AM to 7 PM.

NYSE trading hours Nasdaq pre-market

Introduction to Extended Hours Trading

First, take a look at the app to find out more about your opportunities as a broker and learn which markets are your main markets of operation to identify how you can benefit from extended stock market hours. Compare prices in different periods and try to identify the best hours to operate for you. However, many retail brokers do not allow all types of trades during pre- and after- market hours and usually allow only limited orders. This should not be a big problem because you can track prices in depth of the market window and set your preferred prices. 

Benefits of Trading During Extended Hours

Why would you consider extended trading hours  a great opportunity? 

First, news of course. Some reports and insights may come out unexpectedly and some of them may greatly influence your portfolio. Why would you wait for the next day if you can use the opportunity to take advantage first? Later we will take a closer look at some real-life examples.

However, one more thing to consider is the pricing. Extended hours trading in many cases would mean highly volatile stock prices, which can be considered an advantage in many cases. Again, you see news and you go for the trade while the price is still the same.

If you’re not a professional trader and you have no opportunity to devote time from your regular schedule you can use stock market extended hours without the risk of missing out on important trends and events.  

Trading during the after-hours can be a good indicator of what is going to happen tomorrow, that is how many investors predict the trends of the following days. Nasdaq after-hours indicators are made to track the performance of the market during these hours. Of course, all the trading happens through electronic platforms only during extended hours and most broker apps charge a fee for that.

There is a limited number or orders that you can make during pre-market hours, some platforms limit prices so the securities can be sold only at a certain price. The amount of shares can be limited and the investors are not allowed to trade more than specified. Pre-market and after-market trades are never the same price and volume as the regular hours and even if you’re trading online and technically it all looks the same, keep in mind this difference and time-zones of different markets where you trade.

Examples: On March 29, Micron published the results for the 2022 first quarter, which included numbers such as Non-GAAG EPS $2.14 which turned out to be better by $0.16 than expected. What happens in the pre-market? Growth by 10%! 

Micron Technology stock rise report chip

Virgin Galactic announced the ticket opening for future travels on February 15: +11% on pre-market. 

SPCE Virgin Galactic when rises falls prospects

Risks and Pitfalls of Trading During Extended Hours

We’ve already talked about the advantages but here is the question — why doesn't everyone use the opportunity to trade stocks during extended hours? How does extended hours trading work?

Talking about higher volatility, which is not good or bad in general, it all depends on the stocks in your portfolio and your strategy. Generally, keep in mind that volatility is greater in the extended hours trading times. You may come across bigger prices in certain hours and that is the reason why you should watch the price of the share you want to buy for some time to make sure that it’s a good option to buy in these hours. Most likely you know yourself that a compulsive purchase is a bad investment strategy. 

Jumping straight to the next point — changing prices. The price can significantly change over the day so check the pre-market and after-market to make sure it is worth it. Most of the broker platforms now let you watch these swings and make sure you know about the current price. 

Also, lower liquidity is a sign of extended hours, limited trading means that the number of operations, i.e. the number of investors buying and selling is smaller. Liquidity is lower and the price spreads can be higher. Lower liquidity + higher volatility = unpredictable changes in prices or its significant growth in comparison to regular hours. 

Final Thoughts

When local markets are done and closed, international ones are still functioning and smart investors know that a bad day in the European market may mean the U.S market opens lower.  We live in an amazing fast-paced world where there are 24/7 opportunities to trade in many domestic markets. NYSE extended trading hours are 4:00 p.m. to 8:00 p.m. ET. Also, it's nice to remember that the futures market operates virtually 24/7, which also gives amazing opportunities.

FAQ

Can I trade during extended hours? Can a beginner trade during market extended hours?

Yes, if the platform that you use provides this opportunity. Typically, all brokers allow it with some limitations on the types of trades that you can do. For example, you might be able to set only limit orders. Anyone can try trading like this but there are more risks during that time and we would recommend being careful. Due to low liquidity the price spread can be very big and you may not be able to sell your stocks fast or at the price you want.

Can I place order ahead during the after-hours?

Yes, that is one of the main benefits of extended hours options trading, you can use these hours not just to predict the trends but also to place orders. If you place a limited order then your order might be satisfied at after-hours trading session, depending on the demand on the market. But if you place a market order, then your order will be satisfied only when the market opens.

Are all stocks available to trade during the market extended hours?

No, there are many stocks that are not available for trading and you need to check in advance if there is such a possibility.

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