What is After Hours Trading
Most traders trade during normal trading hours, which is 9:30am EST to 4:00pm EST for US markets, however, trading does occur outside these hours in the after hours trading session.
After hours trading is trading that occurs after the market closes at 4:00pm EST and can run to as late as 8:00pm EST. Volume tends to dry up the later it runs and becomes riskier to put positions on.
How After Hours Trading Work
After hours trading is done through electronic communication networks (ECNs) that are programmed to match buyers and sellers automatically without the use of an exchange.
The after hours trading can be done in the evening between 4:00pm -8:00pm EST. Most brokers allow traders to participate but may only allow you to place limit orders in order to protect traders from slippage.
Trading during these times can be high risk as there is a lot less volume resulting in higher spreads and more volatile moves. This is not a place for new traders to be putting on risk and is best suited for experienced traders who have a higher tolerance for risk, and the capital to back it up.
Aside from the major risks associated with trading in the after-hours, there are some major benefits too. Major news events such as earnings occur during the after-market session and create excellent opportunities to take advantage of.
Example of Trading After Hours
For instance, United Continental (NASDAQ: UAL) recently posted earnings that sent the stock up over 3 points in just a couple of minutes. Savvy traders were able to take advantage of this move and capitalize on the volatility.
You also have important economic data that comes out in the morning usually before the market opens that can provide some great trading opportunities. These events are more favorable to trade when they first come out as opposed to waiting till the market opens and the news has already been digested and traded on.
Warrior Trading Pro Tip
After hours trading is extremely risking and something new traders should avoid doing. Spreads are usually a lot wider and volume can be very light making it a risky time to trade as you will have to increase your risk parameters.
If trading is new to you then your best bet is to learn the market when things aren’t so chaotic and fast paced. It’s easy to get burned in after-hours trading and that’s not something you want to have happen when you are just starting out.