Extended Trading

Extended trading is trading conducted by electronic exchanges either before or after regular trading hours. Such trading tends to be limited in volume compared to regular trading hours. Pre-market trading in the United States usually runs between 6:00 a.m. and 9:30 a.m. Eastern Time and after-hours trading typically runs from 4:00 p.m. to 8:00 p.m. Eastern Time.

Extended trading has become increasingly popular over the past decade as investors have embraced electronic trading and financial markets have become globalized. Electronic Communication Networks – or ECNs – have democratized extended hours trading and even retail investors have an opportunity to place trades outside of regular hours. Extended trading lets investors act quickly on news and events that occur when the market is closed.

Most brokers require traders to enter limit day orders during extended trading sessions since the lack of liquidity makes market orders impossible in some cases. In addition, most brokers only permit the trading on Reg NMS securities. Over-the-counter securities, many types of funds, some options, and other markets may be off-limits during extended trading hours.

Extended trading hours depend on the securities exchange and market regulations. In addition to these set rules, the majority of trades tend to occur right around regular hours trading. This is because most news that affects investors occurs either shortly before or shortly after the market opens or closes.

Investors in the United States can generally start trading at 6:00 a.m., but the majority of trading occurs between 8:00 a.m. and 9:30 a.m. Eastern Time. Similarly, investors may trade until 8:00 p.m. after the market closes, but the majority of trading occurs before 6:30 p.m.

The U.S. options and futures markets tend to have different trading hours depending on the underlying assets, while the foreign exchange (forex) market operates 24 hours per day.

The U.S. Securities and Exchange Commission (SEC) highlights several risks associated with extended trading, including:

• Limited Visibility: Some brokers don’t provide quotes or route orders through any ECN, which means that you may not be getting the best price. Ask your broker if they route orders to other ECNs for the best price.
• Limited Liquidity: Extended hours have less trading volume than regular hours, which could make it difficult to execute trades. Some stocks may not trade at all during extended hours.
• Large Spreads: Less trading volume often translates to wider bid-ask spreads, which can adversely affect the market price for execution, making it harder to execute orders at favorable prices.
• Increased Volatility: Less trading volume often creates an environment for greater volatility given the wider bid-ask spreads.
• Uncertain Prices: The price of a stock trading outside of regular hours may not closely match the price during regular hours.
• Professional Competition: Many extended trading participants are large institutional investors, such as mutual funds, that have access to more resources.

Extended trading has become increasingly popular over the past decade by giving investors a way to capitalize on information that falls outside of regular trading hours. Pre-market trading in the United States usually runs between 6:00 a.m. and 9:30 a.m. Eastern Time and after-hours trading typically runs from 4:00 p.m. to 8:00 p.m. Eastern Time. One of the greatest risks for extended trading investors to consider is the variance in the market price of execution in extended hours trading versus regular hours.