There are three Stock Trading Sessions:
The pre-market trades from 4:00 AM to 9:30 AM (U.S. Eastern Time)
The regular market trades between 9:30 AM and 4:00 PM (U.S. Eastern Time)
The after-hours market trades from 4:00 PM to 8:00 PM (U.S. Eastern Time)
In this post we will talk about after-hours trading.
After-Hours Trading is a term used to describe trading that takes place between 4 PM U.S. Eastern Time, up until 8 PM. During this time, most of the U.S. exchanges have closed. Trading in this time frame is performed using Electronic Communication Networks (ECNs). ECNs are computerized systems that automatically match buy and sell orders for securities in the market.
After-hours trading can be useful for traders and investors when they want to take advantage of news breaks (e.g., financial reports, global events, etc), even though the stock exchanges have closed. It is important to know that trading in this time window is more volatile and risky than during the regular market time. That is because the price of a certain asset during after-hours can be different from the asset’s price when the market opens the following day. To minimize risk, investors and traders can use limit orders.
During the after-hours market, the spread (the difference between the bid price and ask price) is wider, because there are fewer trades. Another difference can be seen in volume. After the initial release of the news break, the volume for the asset affected by the news may spike. However, as the session progresses, the volume thins out.
Last but not least, during the after-hours market, since there are wider spreads and thin volumes, fewer shares are required to have a significant impact on the price.