For the NYSE and the NASDAQ, standard trading hours are 9:30 a.m. to 4:00 p.m. Eastern Time. [1] But you can trade through electronic markets before the opening from 4 a.m. to 9:30 a.m.— and after the close from 4 p.m. to 8 p.m. Eastern Time. [2]  (A handful of OTC stocks do not trade after hours). The old open outcry system for price discovery is no longer used except for market-on-open.

Most orders which go through the exchange during business hours are already electronic but under the purview of a designated market maker, formerly a specialist. The DMM will often oversee several hundred stocks—far more than the old specialist model. He is obligated to… “maintain a fair and orderly market in their stocks… facilitate price discovery throughout the day…[especially] in periods of significant imbalances and high volatility.” [3]

While similar in many ways, electronic networks utilized to trade during extended market hours are not overseen by DMMs. Computers match buyers and sellers. If you want to sell 500 shares of Exxon at $93.50 and there isn’t a matching buy order during the trading session, no trade occurs. [4] 

As an individual, you have to trade through a broker set up to trade during extended market hours, and not all brokers offer this service. The after-hours market is dominated by institutional investors. It isn’t for the faint of heart since you are up against professional traders. [5]

NYSE Arca Is One of the Largest After Hours Electronic Exchanges

A good way to learn about this market is to review the website of one of the largest after-hours exchanges, NYSE Arca. You can find the website here. Arca is a wholly-owned subsidiary of the New York Stock Exchange. *Cannon does not recommend or endorse any financial firm or service, and we have no connection with NYSE Arca

What Are the Rules?

• You have to set the exact price at which you will buy or sell.
• Every order must be a limit order.
• An order is only good for the time block in which you are trading. It doesn’t roll over.
• No order to buy or sell can be for more than 25,000 shares. [6]

 

Why Do Individuals and Institutions Use the After-Hours Market?

Suppose you are a day trader or institution. In that case, one of the main reasons to trade off hours is to react to corporate earnings announcements, which are usually made when the regular market isn’t open. Professional traders follow these announcements for stocks they are trading and need the flexibility of extended trading hours.

Another reason is trades are anonymous. While you can trade anonymously during regular hours, you need permission to do this since the securities markets are public markets. During extended trading hours, you can trade without showing your hand. This benefits brokers liquidating a large position for a major pension fund, for example, since a rumor such an action is being taken can knock down the price of the stock.  

Risks of After Hours Trading Include, according to the SEC:

• Lack of liquidity with only a limited number of shares trading.
• Price Volatility.
• Unlinked Markets: consolidated price and volume information from all electronic networks isn’t available.

 

If you buy the story that extended hours trading is better than trading during standard hours,  remember the Latin maxim— caveat emptor—buyer beware.

 

Resources:

[1] investor.gov/introduction-investing/general-resources

[2] https://www.nyse.com/markets/nyse-arca/trading-info

[3] https://www.nyse.com/market-model

[4] https://www.schwab.com/learn/story/after-hours-trading-will-it-work-you

[5] https://www.forbes.com/advisor/investing/after-hours-trading/

[6] https://www.schwab.com/learn/story/after-hours-trading-will-it-work-you

 

Contributing Writer: Subject Matter Expert Charles McCain

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