Extended hours trading

What Is Extended Hours Trading? Get the Basics

Like any other business, the U.S. stock market keeps regular hours. And some of its traders also work overtime – either before the open or after the close – through extended-hours trading.

“On the surface, trading outside of normal U.S. market hours allows more time to keep your plan aligned with the 24-hour news cycle,” said Brian Bachelier, Scottrade’s vice president of active trader strategy. “However, extended-hours trading is quite different than trading during regular hours, and presents unique concerns.”

Extended hours trading has been available to retail investors since 1999, but the majority of trading continues to happen during regular trading hours from 9:30 a.m. to 4 p.m. ET. Scottrade offers extended hours from 6 a.m. to 9:28 a.m. ET pre-market and from 4:02 to 8 p.m. ET after-hours. The lower volume during extended hours offers investment opportunities, but also exposure to risks not encountered during normal market activity. In general, traders should expect higher volatility during extended hours.

Liquidity

As a result of fewer participants, you accept a greater risk that your order will not be executed. The lack of activity can also cause wider spreads between the bid and ask prices.

Scottrade only permits day limit orders during extended hours, and these orders are only open within the session where they are placed. For example, a pre-market order will only stay open until 9:28 a.m. ET, an after-hours order until 8 p.m. ET, and no extended hours orders will remain open during regular trading hours.

News Announcements

Companies often wait to make major announcements, such as earnings, after market close. This information can cause extreme price swings during extended hours.

While earnings reports are perhaps the best-known example of material news released outside market hours, geopolitical events (natural disasters and civil unrest, for example) can also impact the global markets. Economic reports released before the market opens can also have a large impact.

For example, on the first Friday of every month, the Bureau of Labor Statistics releases its Employment Report. The report is highly influential to both corporate and consumer audiences.

Competition

Many extended hours traders are professional investors working with large institutions, such as mutual funds. These institutional investors may have access to different or more current information than retail investors.

 “A stock’s intrinsic value is always moving, whether you’re trading in normal or extended market hours,” Bachelier said. “While the potential for reward exists, so does the risk.”

Next Step: Scottrade clients can plan their next move anytime by logging in and going to the Quotes & Research section. Not a client? You can use the free version of the Quotes & Research section.

The content provided is for informational and/or educational purposes only and should not be considered a recommendation or an endorsement of any specific investment strategy. Your choice to engage in a particular investment or investment strategy should be based solely on your own research and evaluation of the risks involved, your financial circumstances, and your investment objectives. You are fully responsible for your investment decisions.

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