After-Hours Trading

Definition

After-Hours Trading refers to the buying and selling of securities completed outside of the standard trading hours of the major exchanges. These hours typically extend from 9:30 a.m. to 4:00 p.m. Eastern Time, so any trading that happens before or after this period is considered after-hours trading. This type of trading utilizes electronic communication networks (ECNs) to match potential buyers and sellers without using a traditional stock exchange.

Phonetic

The phonetic pronunciation of “After-Hours Trading” is: /ˈæftərˈaʊərzˈtreɪdɪŋ/.

Key Takeaways

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1. After-Hours Trading refers to the buying and selling of securities outside of the standard trading hours, which are typically 9:30 a.m. to 4:00 p.m. ET.
2. While it allows traders to react quickly to news events or financial results that occur outside standard trading hours, After-Hours Trading also comes with increased risks such as lower liquidity, higher volatility, and wider bid-ask spreads.
3. Not all types of securities can be traded during after-hours and it may be generally recommended for experienced traders due to the additional risks and the sophisticated understanding of the financial markets it requires.

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Importance

After-Hours Trading is important because it allows investors to react to news events and trade outside of standard market hours, which are typically from 9:30 a.m. to 4:00 p.m. EST. This flexibility can provide significant advantages, such as the ability to immediately act on earnings reports or major geopolitical events, instead of having to wait until the market opens the next day. However, it also comes with increased risk due to lower liquidity and higher volatility. Therefore, it is typically utilized by seasoned traders and investors who understand these risks and are capable of managing them.

Explanation

After-hours trading refers to the buying and selling of securities completed outside of the traditional trading hours of the major exchanges, such as the New York Stock Exchange and the Nasdaq. This practice allows investors and traders the ability to adjust their positions beyond the regular trading hours, presenting an opportunity to respond to news events that can occur at any time, including earnings reports, economic indicators, or significant geopolitical events. Generally, the regular trading hours for most U.S. exchanges are 9:30 a.m. to 4:00 p.m. Eastern Time; any trading activity that takes place outside these hours can be considered after-hours trading.The purpose behind allowing after-hours trading is to provide market participants with the flexibility to manage their investments and make strategic moves when new information becomes available. It is particularly useful in a global marketplace where events in one part of the world can significantly influence the financial markets in another. Additionally, it aids in smoothening out the volatility and discrepancy in prices, that might otherwise be larger if all trades were to be conducted in the regular trading hours. Therefore, after-hours trading serves as a platform for extended accessibility and responsiveness to global financial events.

Examples

1. Tech Earnings Report: In April 2018, Facebook, a publicly traded tech company, announced their earnings report after the regular trading hours. After posting strong earnings, the positive news led to an increase in the company’s stock price during after-hours trading.2. Global Events: In June 2016, the Brexit vote (Britain’s decision to leave the European Union) was announced during the U.S. after-hours trading session. This global event led to an unexpected rise in the value of the dollar, thus influencing U.S. stocks traded in after-hours.3. Acquisition Announcements: In February 2019, biotechnology company Spark Therapeutics announced that it was going to be acquired by pharmaceutical giant Roche. The announcement was made before the start of regular trading hours, and as a result, the shares of Spark Therapeutics almost doubled in price during aftermarket trading due to the perceived value of the acquisition deal.

Frequently Asked Questions(FAQ)

Related Finance Terms

• Electronic Communication Networks (ECNs)
• Liquidity
• Limited Volatility
• Risk Management
• Extended Hours Trading

Sources for More Information

• Investopedia
• NerdWallet
• The Motley Fool
• MarketWatch