Being able to trade the markets before and after the official hours of main market trading has become an essential tool for knowledgeable investors today. Essentially by having access to pre and post market functionality on the trading platform you use, you are gaining have access to additional hours where you can trade the markets. In the case of the US Markets, for an additional 10 hours.
This allows investors to buy and sell when the main market is closed and the pre or post market sessions are open.
- Post Market /After-hours trading means the you can trade after the normal hours of the stock exchange end and the market closes for the day
- Pre market occurs before the main market opens
- There are things such as limited liquidity investors need to be careful of when trading after-hours trading however if used wisely can make a lot of sense when the opportunity arises
- In the past, pre- and after-hours trading used to be one of the benefits reserved for institutional investors only. Retail investors did not have access, but that has changed with online trading
- In spite of the risks associated with premarket trading, this type of trading has attracted keen interest from investors
In the screenshot below, you can see that Apples price keeps on trading in the post market trading session.
Extdended hours trading which is now available on Moneybase has a number of main benefits mainly being,
- Havings more hours allows investors to choose to react to market moving news or market movements before the market opens for the main session thus maximising ones ability to tap into investment opportunities
- Providing convenience around the time investors can trade and make focused decisions.
- Convenient for investors: Extended hours trading is convenient for working professionals or others busy during regular trading hours because it allows them to trade after-hours
- Can trade the news and releases: It allows traders to trade based on major news items, such as earnings reports published after regular trading hours
- Trades before other traders: Extended hours trading also allows traders to move ahead of others by placing orders ahead of the next day’s schedule
So for instance, if there is positive news after the market closes and you think that a Stock or ETF will continue to climb further in the main market on the following day, you might decide to purchase beforehand, or on the flip side, if there is negative news you might want to sell before the main markets open.
With pre-market trading, investors can place orders as early as 10 a.m. and after hours until 2 a.m. in local time (CEST), before and after the U.S. stock exchanges are open. All Stocks and ETFs trading on the New York Stock Exchange and the Nasdaq are available outside regular market hours.
Companies usually report Stock market earnings during extended hours. These reports often generate market movements and depending on the way the market percieves the news, the market will move accordingly. Since statements made by companies can be being received as positive or negative, earnings are a popular for traders who trade by market sentiment.
When a company announces the intention to acquire another company, the stocks involved in the deal see considerable activity. An common example is Intel’s acquisition of Mobileye which was announced in pre-market, and jumped from the 40s to the 60s.
Below you can also see how Twitters price fluctuated on acquistion talks.
Market Rumors and Breaking News
Breaking news can come in many forms, such as when a major fund manager announces their next big move, or a company’s hits the headlines, many different news announcements happen during extended hours.
A rumor which is featured on major news platforms such as Reuters or Bloomberg will also generate price movements and these are regularly announced during extended hours.
Many economic indicators are released at 8:30 am an hour before trading begins in New York. Market reaction to these indicators can cause big movements in price, and set the direction for the trading day.
For example, the jobs report in the US released on the first Friday of every month has one of the biggest impacts on the market. When the data released comes above or below expectations, investors can expect movements in the market.
Things to be aware of
Extended Hours Trading may not be suitable or appropriate for all investors and poses certain risks including lower liquidity, higher volatility and wider spreads during extrended hours. There is likely to be limited trading activity compared to the trading activity during Core Trading Sessions. However by using limit orders when placing trades you can greately mitiage the risks.
- Low liquidity: Pre-market and after-hours trading is characterized by low levels of liquidity, meaning there is no guarantee that a particular trade will be executed.
- Volatility: Pre-market and after-hours trading has low volume, which can result in volatility and price swings because there are fewer participants.
- Limit orders only: Only limit order types are available during pre-market and after-hours trading.
The Bottom Line
After-hours trading has benefits in certain instances such as when investors are trying to profit on expected news, or it may provide a means of entering or exiting the stock if unexpected news is announced. However the regular trading sessions offer better liquidity and more efficient markets, which makes all prices more reflective of fair value. All in all it is a good tool for when you need it and personally i find it userful when reviewing investments after a long day of work, in my own time and placing limit orders for the days to come.
The usual disclaimer
This website (the “Blog”) is created and authored by Alan Cuschieri (the “Content Creator”) and is published and provided for informational purposes only. The information in the Blog constitutes the Content Creator’s own opinions (and any guest bloggers posting from time to time).
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