Trading stocks after hours is both legal and useful for savvy investors. The stock market’s regular operating hours for buying and selling stocks and other securities are 9:30 a.m. to 4 p.m. Eastern time. But you can trade many stocks after hours set by the exchanges. Extended hours trading can offer convenience and other potential advantages. but it has special rules, restrictions and risks. It’s not for everybody.Moving Stocks After Hours
During the regular trading day investors can buy or sell stocks on the New York Stock Exchange and other exchanges. They can also trade via digital markets called electronic communication networks or ECNs.
After hours and premarket trading takes place only through ECNs. Those trading stocks after hours typically do so between 4 p.m. and 8 p.m. Eastern. However, each ECN has its own rules. Individual brokerages also have different rules for extended hours trading. An investor interested in extended hours trading should check a broker’s policies to see what is allowed.
For instance, Schwab allows after hours trading from 4:05 p.m. to 8 p.m. Eastern. Wells Fargo accepts trades from 4:05 p.m. until 5 p.m. Eastern. TD Ameritrade offers trading 24 hours a day five days a week.
Meanwhile, premarket trading takes place in the morning before the market opens. Typically, that’s from 8 a.m. to 9:30 a.m. Eastern.
During the regular market hours, traders can make many different types of orders. For instance, they can specify that an order has to be completely executed or not at all. In extended hours trading, usually only unconditional limit orders are allowed.
Traders can trade more types of securities during the regular market. For instance, TD Ameritrade’s extended hours only allow trading in a handful of exchange-traded index funds.Cost of Trading Stocks After Hours
Extended-hours traders may also pay extra fees. E*Trade, for instance, charges $0.0005 per share during extended hours.
If your broker accommodates extended hours trades, you’ll likely be asked to sign an agreement to use the ECN. You may need to agree to talk by phone with a representative who will make sure you know what you’re getting into.
Then you can place an order specifying the quantity, price and limit. After that, it’s advisable to monitor the status of your order. Extended hours orders may not be filled completely or at all due to the limited volumes. And extended hours orders are only good for one day.
Trades completed during extended hours are considered to be completed on that date. So a stock purchased after hours the day before its ex-dividend date is eligible to receive the dividend. A stock purchased on the premarket on morning of the ex-dividend date is not.Why You’d Trade Stocks After Hours
Being able to trade after the market closes lets traders react quickly to news events. For instance, companies often release earnings after the market closes. An extended hours trade can take advantage of this before the regular markets can react.
Other news events also motivate extended hours trading. Takeovers, mergers, bankruptcy filings, government reports on unemployment and other events can move shares after the opening bell. Extended hours traders can get a jump on these moves.
Finally, some traders trade during the extended hours for convenience. Other commitments may mean they can’t trade during regular hours.Risks of Trading Stocks After Hours
Far fewer people trade during extended hours. The volume of shares traded is also much lower. This means much more price uncertainty and volatility than when regular markets are open.
Low volume means prices can move sharply and unexpectedly. It may also be difficult for traders to get trades executed at all. Differences between bid and asked prices may be much wider than during regular market hours.
Prices quoted during regular hours are consolidated from multiple trading venues. Market makers also help see that traders get the best available price to buy and sell.
Prices during extended hours may reflect only prices on an individual ECN. Those may be different from available consolidated prices. That can lead to shares opening at much different prices once the regular session begins.Bottom Line
Extended hours offer opportunities to move quickly on significant news. But extended hours traders can be vulnerable if they act on unreliable information. A rumor of a takeover may spark a price rise in extended hours trading. But the rise may fizzle after markets open if the rumor turns out to be unfounded.
Relatively few non-professionals trade during extended hours. Investors often gain experience at trading during regular market hours before testing their skills against the experts during extended hours.Investing Tips
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