After-Market Trading: What it is and How it Works

Investors are used to trading during regular market hours from 9:30 a.m. to 4:00 p.m. Eastern time, Monday through Friday. Those hours offer plenty of time to make the trades necessary to keep portfolios up to date.

But some traders want to maximize profit by taking advantage of market inefficiencies, the latest news, and general trends in an effort to beat the market’s average returns. One tool these traders might consider using is after-hours trading.

Here’s what you need to know about after-market trading to see if it might be a good fit for you and your investing goals.

What is after-market trading?

When you’re first starting in the stock market, you might come across the concept of after-hours trading. This concept can allow you to trade stocks and other investments outside of the markets’ regular trading session of 9:30 a.m. to 4:00 p.m. Eastern time that is utilized by both Nasdaq and the New York Stock Exchange (NYSE).

Rather than traditional trading on the markets, after-hours trading uses electronic communication networks (ECNs) or alternative trading systems (ATSs) to execute trades.

The hours for after-hours trading depend on the brokerage firms, markets, and trading venues used. For instance, Webull offers after-hours trades during the following times:

• Pre-market trading — 4:00 a.m. to 9:30 a.m. Eastern
• After-hours trading — 4:00 p.m. to 8:00 p.m. Eastern

Robinhood only offers after-hours trading during the following hours:

• Pre-market trading — 9:00 a.m. to 9:30 a.m. Eastern
• After-hours trading — 4:00 p.m. to 6:00 p.m. Eastern

How does after-market trading work?

After-market trading can be helpful if you want to trade based on breaking news or the latest earnings season results. After all, most companies report their earnings before the market opens or after the market closes for regular trading activity. The news cycle doesn’t limit itself to market hours, either.

In the past, after-hours trading wasn’t something the vast majority of investors took part in. Instead, it was a tool the wealthy and large institutional investors used. Today, technology and some of the best investment apps, such as Robinhood and Webull, have made after-hours trading more accessible to the everyday investor.

Even so, after-hours trading isn’t anywhere near as popular as trading during the regular market session. The markets you can trade on don’t have as much activity after hours. This makes it harder for the markets to work efficiently and could result in more volatility, less liquidity, and larger price spreads between what sellers are willing to sell at and buyers are ready to buy at.

It may be difficult to trade certain stocks that don’t have enough volume. Still, the most popular companies may see enough activity, making it more likely to result in trades going through.

The rules for trading after hours will depend on your broker and the investments you want to trade. You may be limited to certain types of buy and sell orders due to the decreased volume and higher spreads. For example, Webull only allows its customers to initiate limit orders but doesn’t charge any fees for access to after-hours trading.

When it comes to making smart money moves during volatile markets, it’s important to know that stock prices can increase and decrease rapidly during these times. After-hours trading might help you take advantage of the overnight or early morning trends before the markets officially open for regular business. While these advantages might result in larger returns, they could result in considerable losses too.

Pros of after-market trading

• More trading opportunities: You can trade outside of regular market hours.
• Can take faster action on earnings releases and news: You can trade based on a company’s earnings performance, national jobless claims, or other market-moving reports.

Cons of after-market trading

• Less volume: Fewer trades happen outside of standard trading hours.
• Bigger bid-ask spreads: Fewer trades may result in differences between buyers and sellers asking prices.
• Limit orders may be required: Some brokerages may require limit orders to avoid unintended transactions going through at unusual prices.
• Not all investments are available to trade: Some assets may not have enough volume to execute trades after hours.
• Brokerage firms may not support after-hours trading: Not all firms offer after-hours trading sessions.
• Trading with experienced investors: Traditionally, high-net-worth individuals, experienced traders, and institutional investors are the major groups that use after-hours trading.

Is after-market trading right for you?

After-market trading may be a good fit for advanced, active investors. These investors could use after-hours trading to attempt to beat the market by taking advantage of news, earnings reports, and inefficiencies that happen after the closing bell. If you want to give after-hours trading a shot, consider using Robinhood or Webull. Both are commission-free brokerages that offer some after-hours trading opportunities. Read our Robinhood review for more details.

The average active investor should have plenty of opportunities to make trades during regular trading hours without dealing with the limitations of after-hours trading. Long-term buy-and-hold or index investors wouldn’t be a great fit for after-hours trading either. Robo-advisors, such as Betterment, or low-cost brokerage firms, such as Vanguard or Fidelity, are likely better options for long-term investors.

FAQs

Bottom line

People just learning how to invest money will likely be best off ignoring after-hours trading and waiting until the next day to put in orders. That said, more seasoned investors with a specific strategy in mind may be able to use the extended hours of after-market trading to their advantage.

If you decide to try your hand at after-hours trading, make sure you pick a brokerage firm that offers the trading hours you want. Some firms offer after-hours trading with no additional fees too. And, when trading, strongly consider using limit orders. This could help you avoid having orders go through at unintended market prices due to the lower trading volume and higher volatility that happens after the market closes.