OVERVIEW OF AFTER-HOURS TRADING
This is normally the time outside the standard business hours when people engage in securities purchasing or selling.
Happening in the electronic market, and enables investors to respond to news or events which may happen after the market is closed.
Such trading style has been adopted because of the advancement in the electronic communication networks (ECNs).
Regular Hours versus After Hours Most stock exchanges usually run through Daily, 9:30 AM to 4:00 PM of local time.
Several markets open after hours to allow traders to have a one or few-hour chance of placing positions and getting out for the subsequent day’s market, depending on the specific exchange and geography of the trading platform.
Key Features
- Taking place on ECNs, not on the stock exchanges themselves.
- Sells to both the retail and institutional investors.
- The chats are mainly employed when evaluating the earnings releases, economic indicators or any world events.
AFTER-HOURS TRADING SCHEDULE IN VARIOUS COUNTRIES
That is to say, after-hours trading rules also vary from country to country. Below is an overview of schedules for major markets:
United States
- Regular Hours: 9:30 AM to 4:00 PM (EST).
- After-Hours: 4:00 PM to 8:00 PM (EST) in such market platforms as Nasdaq and NYSE.
United Kingdom
- Regular Hours: 8:00 AM to 4:30 PM (GMT).
- After-Hours: Restricted availability in most platforms, mostly up to 9.00 PM GMT.
India
- Regular Hours: 9:15 AM to 3:30 PM (IST).
- After-Hours: They include trading through post market Session from 3.40 PM to 4.00 PM (IST) and limited hours for derivatives trading.
Japan
- Regular Hours: 9:00 in the morning to 3:00 in the afternoon, Tokyo time, they take a lunch break.
- After-Hours: Open from 1630hrs to 2330hrs of Japan time through the Tokyo Stock Exchange through ToSTNeT.
Australia
- Regular Hours: 10:00 AM to 4:00 PM (AEST).
- After-Hours: Futures and selected indexes only until 7:00 PM (AEST).
EFFECTS ON STOCK PRICE & VOLUME
1. Volatility
- Earnings trading or trading done during late hours expects more changes in the volatility level. Lower trading volumes during these periods inflates price changes hence making the stocks very volatile.
2. Limited Liquidity
- Less persons make transactions during this period hence volume of transactions during this period is low known as thin market. This may lead to larger bid-ask spreads and also more problems with getting through large orders at reasonable prices.
3. Reaction to News
After-hours trading allows investors to act immediately on news such as:
- Earnings reports.
- Economic indicators.
- Global geopolitical events.
4. Consequences which occur in the following trading day
- Each price spree in after-hours trading determines the mood of the next normal trading session. After hours which are witnessed by many stocks often means that the stock opens either higher than the previous closing price or opens lower than the previous closing price.
ADVANTAGES OF AFTER-HOURS TRADING
1. Flexibility
- Investors can counter the new information that exists after the market closes or in the evening.
2. Accessibility
- One of the benefits of the new electronic trading system is after hours trading which was initially limited to institutional investors.
3. Pre-Positioning
- Some investors can carry out changes in positions in the market depending on what happens in the over-the-counter market for the next trading day.
4. Global Market Synchronization
- International market investors can trade in parallel with their local economies alongside events in the global ecosystem, for instance, overnight within the American or Asia Pacific market.
DISADVANTAGES OF AFTER-HOURS TRADING
1. Limited Liquidity
- This, in some cases, poses a problem when there is a desire to purchase or sell a security as this will lead to low volume that in most cases depresses the price of the asset.
2. Increased Volatility
- Price could also vary more sharply because there are less participants and orders.
3. Wider Bid-Ask Spreads
- Less liquidity affects the pricing, it becomes higher compared to transactions’ costs, which makes prices higher.
4. Execution Risks
- A trade may not even be made at the intended price because of the absence of counterparty or eruption of new price influences.
5. Access Limitations
- While many brokerage platforms facilitate after-hours trading, not all of them do so and some have quotas regarding what is tradeable.
AFTER-HOURS TRADING Vs. STANDARD TRADING
| Feature | After-Hours Trading | Standard Trading |
| Liquidity | Lower | Higher |
| Volatility | Higher | Relatively Stable |
| Accessibility | Limited (requires special platforms) | Broad (available to all investors) |
| Execution Speed | Slower | Faster |
| Market Participants | Fewer (mostly institutional and experienced) | Wider (retail, institutional, global) |
| Transaction Costs | Potentially higher due to wider bid-ask spread | Standard costs |
HOW TO TRADE AFTER-HOURS
Step 1: Select a Brokerage Firm that offers after-hour trading
Make sure your broker offers ECNs for after-hours trading. Popular platforms include:
- Robinhood
- E*TRADE
- Fidelity
Step 2: Appreciate Rules & Restriction
Familiarize yourself with:
- Hours of operation.
- List of securities that can be traded during extra trading session.
- Certain types of orders allowed (for example, limit order).
Step 3: Use Limit Orders
- To avoid the risks associated with high volatility and wide bid-ask spread always insert your limit order which define the highest price that will be paid for securities or the lowest price that will be taken for selling them.
Step 4: Monitor Market News
- Make sure to be in the know about some post-market releases like earnings’ call or macroeconomic events to make better trades.
Step 5: Evaluate Risks
- Expect the price shocks and make sure the portfolio comes in line with your risk profile.
EXAMPLE OF AFTER-HOURS TRADING
Scenario: There is an after-hour release, at 5:00 PM Eastern Standard Time, a company releases its improved quarterly earnings. During after-hours trading:
- The price of the stock zooms by 10 percent due to the realization of the information by the investors.
- The following day, the stock begins trading at a price which is far from its close significantly above or below, depending on trading when the market is closed.
CONCLUSION
Jongrat creditor additional prospecting of trading beyond the normal market period through after-hours trading.
Although, it possesses merits such as flexibility and capability to quickly respond to a market-sensitive event, it also has its demerits such as low capital availability, high risk fluctuation, and execution risk.
It is crucial to learn about the peculiarities of trading in the evening because, knowledge is power, and it helps to avoid dangerous mistakes.
FAQs
What is after-hours trading?
Encyclopedia definition of After-hours trading involves the process of buying and selling of stocks outside the normal business hours of the exchanges. It typically occurs between 4:6:00 PM and 10:00 PM EST of the United States.
What is after-hours trading all about?
Exchange and trading are done electronically, especially after hours trading through a method known as Electronic Communication Networks (ECNs) that allow the buy and sell orders to be matched without necessarily involving a stock exchange.
Well, what will make someone trade after-hours?
The traders may carry out after hours trading to respond to new events that occur within the market such as changes in the direction of an organization or the release of its earnings statement when this happens the traders are forced to open positions during the after-hours.
What are the dangers of after-hours trading?
- Access to breaking news: There are three simple ways through which traders can counter gifts that occur after the standard market close.
- Flexibility: Enables people to trade at other times of the day other than when they are going to work.
- Potential for better prices: Business people may discover market openings that are not available in normal markets.
Does it mean all stocks are traded in the after-hours trading?
Of course, not all stocks are available. Its availability is relative to a given brokerage and whether or not the stock of interest is available for after-hours trading on an ECN.
What countries allow after hours trading?
Some markets of the world are always open for trading for more hours than others are. For example:
- U.S.: Monday to Friday from 16:00 to 24:00 EST (outside working hours).
- Japan: Opening and closing of trading session in Tokyo stock exchange.
- Europe: Opening up of trade for longer hours, for instance at Euronext.