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.
The phonetic pronunciation of “After-Hours Trading” is: /ˈæftərˈaʊərzˈtreɪdɪŋ/.
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- 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.
- 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.
- 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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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.
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.
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)
What is After-Hours Trading?
After-Hours trading refers to the buying and selling of securities completed outside of regular trading hours. Regular trading hours for US markets are typically 9:30am to 4:00pm EST.
How does After-Hours Trading work?
After-Hours Trading works through electronic communication networks that match potential buyers and sellers without using a traditional stock exchange.
What are the benefits of After-Hours Trading?
After-Hours Trading can provide opportunities like greater flexibility in trading times, the potential advantage from earnings reports or major news events released after standard market hours, and a way to manage risk.
What are the risks of After-Hours Trading?
Risks involved in After-Hours Trading include less liquidity, wide spreads, more competition from institutional investors, and higher volatility.
Can anyone partake in After-Hours Trading?
While it may depend on your brokerage, typically both institutional investors and retail traders can participate in After-Hours Trading.
How can I participate in After-Hours Trading?
To participate in After-Hours Trading you need to set up an account with a brokerage that provides this service. You then specific after hours trading or extended hours trading when placing a trade.
Does After-Hours Trading affect stock prices?
Yes, After-Hours Trading can impact stock prices. Transactions that occur during this time will be reflected in the stock price when the regular market opens the next trading day.
Is After-Hours Trading the same as pre-market trading?
No, they are not the same. After-Hours Trading occurs after the market closes, usually from 4:00 PM to 8:00 PM EST, whereas pre-market trading occurs before the market opens, usually from 4:00 AM to 9:30 AM EST.
Related Finance Terms
- Electronic Communication Networks (ECNs)
- Limited Volatility
- Risk Management
- Extended Hours Trading
Sources for More Information