How to trade stocks after hours
After-hours trading in stocks is both legal and useful for sophisticated investors. The stock market normal opening hours for buying and selling stocks and other securities are 9:30 a.m. to 4 p.m. Eastern Time. But you can trade many stocks after the hours set by the stock exchanges. Extended trading hours can offer convenience and other potential benefits. but it has special rules, restrictions and risks. It is not for everyone.
Moving stocks after opening hours
During the regular trading day, investors can buy or sell stocks on the New York Stock Exchange and other exchanges. They can also trade through digital marketplaces called Electronic Communication Networks or ECNs.
After hours and trade before marketing takes place only through ECNs. Those who trade stocks after hours typically do so between 4 p.m. and 8 p.m. Eastern Time. However, each ECN has its own rules. Individual brokerage firms also have different rules for extended trading hours. An investor interested in extended trading hours should check a broker’s policies to see what is allowed.
For example, Schwab allows after-hours trading from 4:05 p.m. to 8:00 p.m. EST. Wells Fargo accepts transactions from 4:05 p.m. to 5:00 p.m. EST. TD Ameritrade offers trading 24 hours a day, five days a week.
During this time, pre-market trading takes place in the morning before the market opens. Typically, it’s 8 a.m. to 9:30 a.m. EST.
During normal market hours, traders can place many different types of orders. For example, they can specify that an order should be fully executed or not at all. In extended trading hours, usually only unconditional limit orders are allowed.
Traders can trade more types of securities during the regular market. For example, TD Ameritrade’s extended hours only trade a handful of exchange traded index funds.
Cost of after-hours stock trading
Traders with extended hours may also pay additional fees. E * Trade, for example, charges $ 0.0005 per share during extended hours.
If your broker accepts transactions on extended hours, you will likely be asked to sign an agreement to use the ECN. You may need to agree to speak over the phone with a representative who will make sure you know what you are getting into.
Then you can place an order specifying the quantity, price and limit. After that, it is advisable to monitor the status of your order. Orders for extended hours may not be filled completely or not at all due to limited volumes. And extended hour orders are only valid for one day.
Transactions completed during extended hours are considered completed on that date. Thus, a stock bought after hours of the day before its thdividend date x is eligible to receive the dividend. A share purchased pre-market on the morning of the ex-dividend date is not.
Why you would trade stocks after hours
The ability to trade after the market has closed allows traders to react quickly to current events. For example, companies often publish their profits after the market has closed. A trade of extended hours can take advantage of this before the regular markets can react.
Other current events also motivate the extended trading hours. Takeovers, mergers, bankruptcy filings, government unemployment reports and other events can move stocks past the opening bell. Extended hour traders can have a head start on these moves.
Finally, some traders trade during extended hours for convenience. Other commitments may mean they cannot negotiate during normal hours.
Risks associated with trading in shares after opening hours
Far fewer people trade during extended hours. The volume of shares traded is also much lower. This means a lot more uncertainty and price volatility than when the regular markets are open.
Low volume means that prices can move suddenly and unexpectedly. It can also be difficult for traders to execute trades. The differences between bid and ask prices can be much larger than during normal market hours.
Prices quoted during normal hours are consolidated from multiple trading venues. Market makers also help ensure that traders get the best price available to buy and sell.
Prices during extended hours may only reflect prices on an individual ECN. These may be different from the available consolidated prices. This can lead to the opening of shares at very different prices once the regular session has started.
Extended hours provide opportunities to quickly move on to important news. But traders with extended hours can be vulnerable if they act on the basis of unreliable information. A takeover rumor could trigger a price hike for extended trading hours. But the rise could run out of steam after the markets open if the rumor turns out to be unfounded.
Relatively few non-professionals trade for extended hours. Investors often gain experience in trading during normal market hours before testing their skills against the experts for extended hours.
If you’re unsure whether after-hours stock trading can help your portfolio, consider consulting with a financial advisor. Find the right financial advisor who adapts to your needs doesn’t have to be difficult. The free tool of SmartAsset connects you with financial advisers in your area in 5 minutes. If you’re ready to be matched with local advisors who will help you reach your financial goals, start now.
Before embarking on a risky strategy like after-hours investing, you may first need to assess your tolerance for risk. SmartAsset Investment Guide can tell you how risky you are comfortable with, how quickly your money can grow, and how much tax and inflation will be taken from your investments.
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