Trading in the Pre- and Post-Market Sessions

Novice stock traders know that the stock market has regular trading hours. Unless it is a public holiday, the market is open from 9:30 a.m. to 4 p.m. Monday to Friday.Billions of stocks are traded in US markets alone, making them highly liquid and efficient.

What new traders may not know is stock Exchange is also open for business before and after normal trading hours. Pre and post-trade trading sessions allow investors to trade stocks between 4 a.m. and 9:30 a.m. during pre-market trading and between 4 p.m. and 8 p.m. for the post-market session.

Compared to the billions of shares traded during the day, after-hours sessions only trade a small fraction of that volume, which invites traders to other issues to consider before trading outside. of the normal day. Can you make money by trading before or after the bell? It’s possible, but first you need to do your research.

Respond to company announcements

Companies are strategic about how they announce important information such as earnings reports. They don’t like to make announcements during regular trading sessions because it could cause a big knee-jerk reaction that misrepresents the true value of their stock. If a company reported last quarter earnings and they were worse than expected, a large-scale exit from the stock could lead to unwarranted big losses.

But the value of the stock can still change even when the market is not open. Investors will want access when that value changes, which is why after-hours sessions are so important. So if you trade when these announcements are made, it means you are better able to react to the news. Once the market opens, stock prices will have already changed, making the stock price better reflect fair value. And if you’ve already reached that point, it may be too late to make a trade.

Economic indicators

Many economic indicators are released at 8:30 a.m., an hour before the start of trading in New York. The market’s reaction to these indicators can cause large price movements and therefore set the tone for the trading day.

For example, the employment report released by the US Bureau of Labor Statistics (BLS) – released on the first Friday of every month – has one of the biggest impacts on the market.When data releases are above or below expectations, traders can expect volatility in the market.

Liquidity limits

In the old days, before and after trading hours was one of the benefits of being an institutional investor. Retail investors didn’t have access to it, but that has changed since the markets moved to computerized trading. Retail investors now have access to these markets, but does it make sense to trade in these sessions outside office hours?

The Securities and Exchange Commission (SECOND) wants you to know a few facts before trading after hours. First, these markets are less liquid. Also, since there are far fewer people trading, you may not be able to sell your shares. If an earnings announcement is worse than expected and you want to sell your shares quickly, you may not be able to do so, especially with smaller non-blue chip companies.

Wider spreads, higher volatility

Another factor to consider in after-hours trading is the bid-ask spread. The spread between the two prices can be wide, which means that the small number of traders did not agree on a fair price. Therefore, you may have to settle for a price that does not reflect fair value.

Finally, since after-hours sessions are largely made up of professional traders and the volume is low, higher price volatility may be present. This can make it harder to know when to buy or sell. A large transaction by a large company could have a significant impact on the price of a share.

After Hours Limitations

If you decide to trade during pre-market sessions and after hours, you may be limited in what you can do.

If we take a look at Charles Schwab’s overview of extended hours, there are key differences between standard trading and after-hours trading.During a regular trading day, traders can expect:

  • Trading on stock exchanges.
  • To execute many order types and restrictions at any order size.
  • A variety of security types, including stocks, options, bonds, and mutual funds.
  • Traders have different time frames.

Compare that to the after-hours brokerage session:

  • Transactions are made through an electronic market.
  • Only limit orders are accepted with a maximum of 25,000 shares on one order.
  • Most listed and NASDAQ securities are available.
  • Orders are only valid for the particular session in which they are placed and are not valid for rollover to the next trading session.

How to trade after hours?

Check with your broker. Most brokers now have access to after-hours trading for all their investors. Some brokers allow limited access, while others only have access to certain computer networks, which slows down the speed of order execution. As the SEC advises, read all disclosure documents before proceeding.

Technology issues

One of the things that investors will have to deal with is related to the system, which accompanies online trading as a whole. With respect to after-hours trading, there may be lags and delays in executing your orders. Worse yet, your orders may not even go through at all.

The essential

Trading after hours can have advantages for traders trying to take advantage of expected news, or it can provide a way to get in or out of the stock if unexpected news is announced. Nevertheless, routine after-hours trading is not recommended for most traders. Regular trading sessions provide better liquidity and more efficient markets, making all prices more representative of fair value. It is important to understand that different brokerage have different rules on trading hours.

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