ou will probably be well aware of the standard market trading hours, but did you know you can also trade outside of the market trading hours?
Most stock exchanges have regular trading hours that mirror the working day. For example, the US stock market is open for regular trading between 8:30 a.m. and 4:00 p.m. Eastern Standard Time, while the UK market is open for regular trading between 8:00 a.m. and 4:30 p.m. During these trading hours, orders to buy and sell securities between different parties are matched on the stock exchange, with the exchange acting as the intermediary in the middle.
When the market is closed, so-called after-hours trading begins. Without the stock exchange acting as the intermediary between buyers and sellers, transactions are settled through what's known as Electronic Communications Networks (ECNs).
What is after-hours trading?
Typically, after-hours trading takes place in the four-hour period before and after markets begin regular trading hours, although this will vary from broker to broker in different markets.
For example, IG offers pre-market trading on US equities between 6:00 am and 8:30 am EST and post-market trading until 5:30 pm EST (5:00 pm on Fridays). The platform also offers spread betting and CFD trading on US stocks between 4:00 am EST and 10 pm EST (5 pm EST on Fridays). Spread betting and CFD trading in other markets on the platform are open almost constantly, including a period over the weekend, unlike most other platforms.
ECN’s allow traders to transmit orders to buy or sell securities, and then the orders are matched with another party looking to take the other side of the trade.
You might be wondering why this is any different from the standard process of buying and selling securities through a stock exchange. The main answer is that ECNs are only available to a handful of market participants. Therefore, liquidity in after-hours trading sessions can be severely constrained.
Using the example above, in regular market hours, an investor or trader might receive hundreds of different offers for their 1,000 share parcel of Apple stock, whereas they may only receive one or two offers in an after-hours session.
Still, as the technology is becoming more widespread, it's becoming more common for investors of all shapes and sizes to make use of after-hours trading networks.
So, what are the benefits of trading outside of regular market hours?
This extended period of trading can be particularly helpful during earnings season. Many US-listed companies release their quarterly earnings reports after the stock exchange has closed. After-hours sessions allow traders to increase or reduce positions based on these results before the market opens the next day.
An extremely positive or negative earnings release could send the stock soaring or plummeting when the market opens the morning after, and by getting ahead of the rest of the crowd, traders may be able to profit.
Benefits of trading after-hours
As noted above, fewer buyers and sellers are in the after-hours market than during traditional stock market hours. As a result, prices can be highly volatile and jump significantly as trades are executed between different buyers and sellers on ECNs.
It is always sensible to use limit rather than market orders when placing trades, and that's especially true during after-hours sessions to ensure you pay or receive the price you want. Using market orders in after-hours sessions could cause losses for traders. Limit orders in after-hours sessions are usually not carried over into the next day’s regular trading session.
While after-hours sessions can help traders get ahead of the market before regular trading begins the next day, it also exposes them to the risk sentiment that may change overnight. It can take time for the market to digest a company's earnings report. Just because the market has reacted one way to the earnings report in the hours immediately after its publication does not necessarily mean it will continue to hold the same view the next day, when the day traders return and participants have had more time to digest the figures.
All in all, after-hours trading can be a useful tool as long as you know the risks involved. Trading in the after-hours sessions could allow you to get ahead of the market and more effectively manage risks across your portfolio. These sessions also give traders more flexibility in managing their workloads so they don’t have to be fixed to their desks during daylight hours.
Risks of trading after-hours
Your wise
trading guide
to investing outside of main market hours
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in association with
Your capital is at risk. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Y
As ever in markets, out-of-hours trading can be a double-edged sword. Stocks often see elevated volatility around earnings, particularly if the earnings conference call after the release gives a different impression to the numbers themselves. Thus, the same rules about risk management and position-sizing apply, and are particularly important given the potential for exaggerated moves in thinner liquidity that can prevail in pre- and post-market trading.
Another advantage of after-hours trading sessions is they allow traders and investors to continue to make adjustments to their portfolios after the market has closed. This could be helpful if a trader has used leverage to increase exposure to a position and needs to free up capital to meet margin calls. By using the after-hours session, a trader can rebalance their portfolio based on the daily market movements to reduce risk.
On the other hand, there are a number of risks traders should be aware of before dipping into the after-hours market.
Chris Beauchamp
Chief Market Analyst - IG UK
in association with
Typically, after-hours trading takes place in the four-hour period before and after markets begin regular trading hours, although this will vary from broker to broker in different markets.
For example, IG offers pre-market trading on US equities between 6:00 am and 8:30 am EST and post-market trading until 5:30 pm EST (5:00 pm on Fridays). The platform also offers spread betting and CFD trading on US stocks between 4:00 am EST and 10 pm EST (5 pm EST on Fridays). Spread betting and CFD trading in other markets on the platform are open almost constantly, including a period over the weekend, unlike most other platforms.
ECN’s allow traders to transmit orders to buy or sell securities, and then the orders are matched with another party looking to take the other side of the trade.
You might be wondering why this is any different from the standard process of buying and selling securities through a stock exchange. The main answer is that ECNs are only available to a handful of market participants. Therefore, liquidity in after-hours trading sessions can be severely constrained.
Using the example above, in regular market hours, an investor or trader might receive hundreds of different offers for their 1,000 share parcel of Apple stock, whereas they may only receive one or two offers in an after-hours session.
Still, as the technology is becoming more widespread, it's becoming more common for investors of all shapes and sizes to make use of after-hours trading networks.
What is after-hours trading?
ou will probably be well aware of the standard market trading hours, but did you know you can also trade outside of the market trading hours?
Most stock exchanges have regular trading hours that mirror the working day. For example, the US stock market is open for regular trading between 8:30 a.m. and 4:00 p.m. Eastern Standard Time, while the UK market is open for regular trading between 8:00 a.m. and 4:30 p.m. During these trading hours, orders to buy and sell securities between different parties are matched on the stock exchange, with the exchange acting as the intermediary in the middle.
When the market is closed, so-called after-hours trading begins. Without the stock exchange acting as the intermediary between buyers and sellers, transactions are settled through what's known as Electronic Communications Networks (ECNs).
Y
trading guide
Your wise
to investing outside of main market hours
So, what are the benefits of trading outside of regular market hours?
This extended period of trading can be particularly helpful during earnings season. Many US-listed companies release their quarterly earnings reports after the stock exchange has closed. After-hours sessions allow traders to increase or reduce positions based on these results before the market opens the next day.
An extremely positive or negative earnings release could send the stock soaring or plummeting when the market opens the morning after, and by getting ahead of the rest of the crowd, traders may be able to profit.
Benefits of trading after-hours
As noted above, fewer buyers and sellers are in the after-hours market than during traditional stock market hours. As a result, prices can be highly volatile and jump significantly as trades are executed between different buyers and sellers on ECNs.
It is always sensible to use limit rather than market orders when placing trades, and that's especially true during after-hours sessions to ensure you pay or receive the price you want. Using market orders in after-hours sessions could cause losses for traders. Limit orders in after-hours sessions are usually not carried over into the next day’s regular trading session.
While after-hours sessions can help traders get ahead of the market before regular trading begins the next day, it also exposes them to the risk sentiment that may change overnight. It can take time for the market to digest a company's earnings report. Just because the market has reacted one way to the earnings report in the hours immediately after its publication does not necessarily mean it will continue to hold the same view the next day, when the day traders return and participants have had more time to digest the figures.
All in all, after-hours trading can be a useful tool as long as you know the risks involved. Trading in the after-hours sessions could allow you to get ahead of the market and more effectively manage risks across your portfolio. These sessions also give traders more flexibility in managing their workloads so they don’t have to be fixed to their desks during daylight hours.
Risks of trading after-hours
As ever in markets, out-of-hours trading can be a double-edged sword. Stocks often see elevated volatility around earnings, particularly if the earnings conference call after the release gives a different impression to the numbers themselves. Thus, the same rules about risk management and position-sizing apply, and are particularly important given the potential for exaggerated moves in thinner liquidity that can prevail in pre- and post-market trading.
Chris Beauchamp
Chief Market Analyst - IG UK
ADVERTISEMENT FEATURE
Your capital is at risk. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.