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Pre Market and After Hours Trading
Did you know that you can trade stocks before the market opens and after it closes? Known as pre-market and after-hours trading, these
two sessions open up more possibilities for both profit and risk.
Regular stock market trading hours are 9:30 am to 4:00 pm EST Monday to Friday, and the market is closed on weekends. On most U.S. holidays stock market is closed too, but
on some holidays it stays open with shortened trading hours: 9:30 am - 1:00 pm EST.
Trading outside regular stock market hours of 9:30 am to 4:00 pm EST is called Extended Hours Trading. This trading occurs on
private trading systems, known as electronic communication networks or ECNs.
Extended Hours Trading consists of Pre-market and After-hours trading.
Pre-market trading is trading that occurs before stock market opens at 9:30 am EST. Many brokerage firms offer it. The most common time period
for it is 8:00 am - 9:30 am EST (with few brokerage firms offering Pre-market trading starting from 7:00 am EST.
After-hours trading is trading that occurs after stock market closes at 4:00 pm EST. Majority of online brokers offer After-hours trading, and the most
common time period for it is from 4:00 pm to 8:00 pm EST.
Extended Hours Trading has very low volume comparing to regular market hours trading. Because of that, investors should almost never use market orders and instead use limit orders
when trading during that time.
In the table above you will find the list of online stock brokerage firms that offer after hours and pre-market trading along with time periods they
set for it. Only Capital One Investing (Sharebuilder) and TIAA do not offer extended hours trading at this time.
The list also contains the surcharges/additional fees for extended hours trading that these investment firms are charging their customers. As you see,
trading at extended hours is extremely expensive with some of these firms.
Extended-Hours Trading
The equity market in the U.S. is normally open for business Monday through Friday from 9:30 am to 4:00 pm, EST. An additional 1½-hour session is available before the market opens, while a 4-hour session creates more opportunity after the market closes. These time slots are just for professional traders. Home gamers can participate, too.
Keep in mind that brokers sometimes impose additional restrictions during these trading times. Fidelity, for example, requires all orders
to be submitted as limit orders. Charles Schwab places a maximum of 5,000 shares on extended-hours trades.
In order to gain the privilege of trading during extended hours, you may have to make a special request to your broker, talk to a company representative over the phone, or sign a form stating that you have read and agree to an Electronic Communication Network (ECN) agreement.
Risks Of Extended-Hours Trading
There are various risks associated with extended-hours trading. There is less trading during these times, which means the bid-ask spread for a security will be larger. A wider bid-ask spread means the stock will be more expensive to buy, or you’ll get less when you sell it. The price difference could be as much as 2-3% compared to the regular session. If you use a limit order during extended hours to protect the price you want, the order may not be filled, or it may only be filled partially.
Pre-market and after-hours periods also tend to have significantly higher volatility. Traders during these times are often professional money managers, so the people you would be trading against tend to be highly skilled and experienced.
Typically, orders that don’t get filled in extended hours will not be carried over to the regular session. This is very important to keep in mind. If you want the order to execute, you may have to submit it again during the regular session. Be sure to check with your broker to determine what its policy is on this important issue.
Advantages Of Extended-Hours Trading
Despite the hazards of extended hours, the two sessions create important opportunities. For example, companies often report their earnings after the market closes. The ability to trade a stock before the regular period opens the following morning allows you to legally get in on the price movement, whether up or down, before other traders do in the regular session.
Economic indicators are sometimes released by the federal government in the morning, before 8:30 am. These news releases can and do affect equity prices, sometimes significantly. Placing trades before the regular session reacts can be a profitable strategy.
After Hours and Pre Market Trading Fees and Cost
Some brokers may charge additional fees for extended-hours privileges. TD Ameritrade and Fidelity do not. E*Trade customers must pay an additional 0.5¢ per share for
all orders that are filled in extended hours.
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