Stock markets keep business hours. In Canada and the U.S., those hours are generally 9:30 AM to 4:00 PM Eastern Time (ET) Monday to Friday. International markets generally stick to the same approximate window — mid-morning to mid-evening — in local time.
Does that mean you can’t buy and sell securities outside of the hours? Nope.
Extended hours trading lets investors buy and sell securities outside of the regular U.S. stock market hours. It includes:
Pre-market trading: Typically 4:00 AM – 9:30 AM ET
After-hours trading: Typically 4:00 PM – 8:00 PM ET
Overnight trading: The period between the end of after-hours trading and the start of pre-market trading (8:00 PM – 4:00 AM ET).
Extended hours trading comes with rules, limitations, and risks. Not every security can be traded during pre-market, after-hours trading, or overnight trading.
What can be traded during extended hours trading?
Most major U.S. stocks and exchange-traded funds (ETFs) listed on major stock exchanges (like the NYSE or Nasdaq) can be traded outside of regular stock market hours.
What can’t be bought and sold during extended hours trading?
Canadian-listed securities. There is a very limited extended hours market for Canadian-listed stocks and ETFs (between 4:15 and 5:00 PM ET). It comes with several restrictions, and not every brokerage offers access.
U.S.-listed options. Because options are a financial derivative, their pricing is based on the price of the underlying stock. Prices are most reliable during regular stock market hours, plus certain stock exchanges don’t operate during extended hours.
Over-the-counter (OTC) stocks. OTC stocks aren’t listed on major stock exchanges. Instead, they’re traded by networks of brokers and dealers in decentralized markets that are much less regulated.
It’s important to note that only limit orders are allowed during extended hours trading. That means investors set the maximum price they’re willing to pay, or the minimum price they’re willing to accept, and a trade will only go through if a matching order meets that price threshold. Limit orders help protect investors from buying too high or selling too low.
Potential benefits of extended hours trading
Extended hours trading isn’t just for night hawks and early risers. It offers some potential benefits, including:
Flexibility. Couldn’t make day trades when you wanted to? After-hours trading and pre-market trading offer flexibility to trade during your schedule.
Ability to react quickly. The world doesn’t stop spinning between the hours of 4:00 PM and 9:00 AM. Political news, natural disasters, earnings reports, and economic updates can happen at any time of day, and all can influence what’s going on in the markets. Plus, U.S. equity index futures trade overnight, and can sometimes offer insight into how the market may open the next day.
Global market influence. What happens in foreign markets can affect stock markets in North America. Extended hours trading lets you keep an eye on global markets, and respond accordingly.
Potential risks of extended hours trading
Like every investing strategy and approach, extended hours trading comes with unique risks. These risks include:
Lower liquidity. Fewer investors are active during pre-market and after-hours trading. That means it could take longer to execute a trade.
Wider spreads. A spread refers to the difference between the price an investor is willing to buy at and the price an investor is willing to sell at. Lower liquidity can lead to wider spreads, and less-than-desirable trade prices.
Increased volatility. Reacting quickly to news during extended hours trading can backfire if the news changes. Plus, because there are fewer active investors during pre-market and after-hours trading — and therefore less trading volume — small trades can cause significant price swings.
How extended hour trading affects opening price
Pre-market trading can continue to influence security prices once regular stock market hours resume.
The opening price of a stock is affected by supply and demand in the lead-up to markets opening, which includes trading that happens during extended hours. Sometimes that can mean a notable difference between the closing price on the previous day and the opening price. A big difference is called a “gap,” and gaps often reflect the market sentiment during extended hours trading.
Here’s an example of how pre-market trading can affect opening price:
Let’s say Nut Milks Worldwide is a publicly traded company listed on the NYSE. Last Thursday, they closed at $35 per share.
At 5:30 p.m. that evening — after markets closed — Nut Milks Worldwide announced record-breaking third-quarter earnings. Investors are excited, and buy up shares during after-hours trading.
Then, in the wee hours of the following morning, a leading medical journal publishes research that shows drinking oat and almond milks can boost cognitive function by 75%. Now investors are really excited. Based on all that increasing demand, the trade price of Nut Milks Worldwide stocks soars to $45 per share.
When markets officially open a few hours later, $45 is the opening price of Nut Milks Worldwide — a 28.6% increase from the previous day’s closing price.
It’s important to note that price swings that happen during extended hours trading don’t always stick. Once the market opens, more investors are active and trade volumes are higher, and prices can stabilize or move in a different direction entirely.
How to trade after hours
Trading after hours is similar to trading during market hours. If your brokerage offers extended hours trading, you would place your trade the same way you would a regular hours limit order trade, the difference being you would select the trading session you wish to participate in (extended hour or overnight). That said, even those that do offer some after hours trading, they might not offer all the various trade windows. Some only offer pre-market trading only or after-hours trading only. These extended hours may differ from brokerage to brokerage, and some may restrict extended hours trading to certain account types. Fees may apply for trading outside of regular market hours.
If you want to try your hand at pre-market trading and after-hours trading, remember:
There are fewer buyers and sellers trading, and spreads are wider. You may not be able to trade what you want, at the price you want, in the timeframe you want. Set your limit prices accordingly.
Watch the news and international markets. To react quickly (and reap the potential benefits), you need to stay on top of what’s going on.
Remember the risk. Responding right away is important, but things can change quickly and trade prices can swing widely.
