Summary:
After-hours trading can be an excellent choice for investors with busy schedules or traders looking for new opportunities. However, risks such as price volatility and liquidity necessitate appropriate strategies. Studying stock market timings with respect to specific regions and exchanges can be instrumental in extended trading.
The idea of after-hours trading has gained tremendous popularity in recent years. It holds particular significance in today’s highly dynamic financial market. Investors can buy and sell stocks outside of the regular trading hours of traditional stock exchanges. Extended trading offers a multitude of opportunities in the stock market but also comes with certain risks. In this blog, we will delve into the different advantages and disadvantages associated with this form of trading, understand how it works and identify different extended trading hours.
Understanding how extended trading works
Typically, stock exchanges have certain set hours for investors to buy and sell securities. For instance, NASDAQ and the New York Exchange (NYSE) provide a 9:30 a.m. to 4:00 p.m. window for trading. Whereas for BSE and NSE Currency Derivatives, the hours are between 9:00 am and 5:00 pm. If you want to know more about the trading hours across different segments of Indian stock exchanges, click here.
However, extended trading allows you to deal with stocks before or after these hours. It can be done in two ways –
| Pre-market trading (NYSE) | Post-market trading (NYSE) |
| It starts as early as 4:00 AM and continues until the official opening of the stock exchange at 9:30 am allowing an extra five and a half hours for trading. | It starts after the regular trading hours end at 4:00 pm and continues until 8:00 pm offering an additional 4 hours for trading. |
The pre-market and post-market trading hours may vary depending on the trading platform, however often remain the same. To be on the safer side, investors can check with their brokers or trading platforms to confirm their extended trading hours.
Here is a stepwise guide if you want to understand how extended trading is done:
| Steps | Explained |
| 1 – Study the hours | Extended trading hours though often in the same range may change with brokerage and exchange |
| 2 – Select a brokerage | Not all brokerages offer access to pre-and post-market trading hours. Fidelity and Charles Schwab are among the many brokers that offer extended trading services |
| 3 – Account approval | Some brokers require investors to apply for approval before trading during extended hours. Approval is typically based on your account balance, risk tolerance, and trading experience. |
| 4 – Access platform | Post approval you can access the platform/app provided by your broker to place orders during extended hours |
| 5 – Place orders | Now you can place market orders, stop orders, limit orders and many more |
| 6 – Monitor your trades | Be aware of your position as high volatility, price fluctuations and unprecedented events may affect your trades |
| 7 – Identify risks | Risks include wider spreads, price volatility and fewer market participants |
| 8 – Stay updated | Stay informed of the latest news as they can affect a security’s price substantially |
| 9 – Review and confirm orders | Double-check your order details and then confirm |
| 10 – Assess cost | Review the fee structure beforehand as some brokerages charge additional fees or different commission rates |
Advantages and disadvantages of extended trading
Extended trading if harnessed properly can be very profitable. However, it is not wise to neglect the potential risks involved when trading during after-hours.
Risks include –
- Reduced liquidity – Extended trading hours tend to have lower liquidity, which means lower volumes as compared to regular hours. This can make it difficult to place larger orders without having a significant impact on the stock’s price.
- Volatility –Erratic price movements result in larger price swings ultimately leading to unexpected losses.
- Limited information – Unlike regular hours, access to market data is limited during extended trading hours.
- Wider bid-ask spreads – A larger gap in the bid price (buying price) and ask (selling price) can lead to higher trading costs.
- Risk of gaps – Prices can move up or down after the market reopens after extended trading hours causing tremendous losses for traders.
Benefits include –
- New opportunities – Traders can promptly react to economic data releases and earnings reports since they are not bound to regular trading hours.
- Convenience – Professionals with busy schedules can opt for after-hours trading services.
- Reduced competition – A lower number of market participants in after-hours trading reduces competition and lowers prices.
- Access to global markets – Investors can trade securities listed on international exchanges when the local market is closed.
- Price discovery – After-hours trading can offer insights into stock movements or where a security may be open prior to the next regular trading session.
Extended trading: Enabling the busy youth to enter the stock market
After-hours trading is a valuable tool for those unable to trade securities during regular hours. It is also offering new opportunities for price discovery and highly profitable trading. However, before you participate, consider your risk tolerance and have a clear trading strategy. Having proper risk management techniques can be useful in protecting your investments. Additionally, you can consult with a financial advisor or broker to make wiser decisions.
For a better view of stock market timings in India, click here.