Many investors assume that once the closing bell rings, stock trading is over for the day. However, the market doesn’t necessarily shut down at 4:00 PM Eastern Time. After-market trading, also known as after-hours trading, continues into the late afternoon and evening, often extending until 8:00 PM. During this period, investors can buy and sell stocks outside of regular market hours, typically using electronic communication networks (ECNs) instead of traditional exchanges. While some brokerage firms provide access to after-hours trading, others may not, and those that do often impose specific rules and restrictions.

A financial advisor can help you get into the after-market trading game if you aren’t sure where to start.

What Is After-Market Trading?

With most stock exchanges, including the Nasdaq and the New York Stock Exchange, the regular stock trading session stretches from 9:30 a.m. to 4 p.m. ET. As its name indicates, after-market trading begins once the markets are officially closed for the day. In the U.S., this trade window usually lasts from 4 p.m. to around 8 p.m. For early risers, there are also pre-market trading hours that begin before 9:30 a.m.

After-market trades are completed through electronic communication networks or ECNs. These frameworks make it possible for buyers and sellers to connect without the aid of a traditional stock exchange. Both individual and institutional investors can gain access to an ECN.

ECN trading is a relatively simple process. You place an order to buy a specific number of shares at a set price. The ECN then searches to see if that number of shares is available at your target price. If the network locates a suitable counterpart, it executes the trade. There is, of course, always the chance that the shares aren’t available, in which case the trade will stall.

Spikes in after-hours trading sometimes focus on specific sectors. In June 2021, for example, relatively heavy trading occurred in many consumer discretionary shares. Among them were shares of J. Jill, Fisker and CarLotz. Also, many traders bought call options on crude oil as optimism that the world’s most valuable commodity is on its way to $100 a barrel, which would be a seven-year high.

Do All Brokerages Offer After-Hours Trading?

The short answer is no, after-market trading isn’t a service every brokerage provides. If the brokerage you use does offer it, it’s important to understand the rules for what you can and can’t trade. For example, brokerages usually only allow you to use limit orders to buy, sell or short stocks. Mutual funds, bonds, options and futures can’t be traded during after-hours sessions.

You should also be aware of any extra fees your brokerage may charge for after-hours trades. While standard commission charges are normal when buying and selling, these potential fees will make your trades slightly pricier. This might not make much of a difference if you’re trading on a smaller scale. But if you’re a big spender, another fee can quickly make things add up.

Benefits of Making After-Market Trades

After-market trading offers investors unique opportunities beyond regular market hours, allowing them to react to breaking news and market-moving events. While it comes with risks, such as lower liquidity and higher volatility, the benefits can be significant for those who understand how to navigate these extended trading sessions. Below are some key advantages of after-market trading:

Reacting to earnings reports and news events: Companies often release earnings reports, economic data, or significant news after the regular trading session ends. After-market trading allows investors to respond immediately to these developments, potentially gaining an edge before the next day’s opening bell.
Extended investment opportunities: For investors who cannot actively trade during regular hours due to work or other commitments, after-market trading provides flexibility. It enables them to buy or sell stocks at a time that better suits their schedule.
Potential for price advantage: Significant price movements can occur after hours, particularly if a stock reacts strongly to the news. Investors who anticipate a trend may capitalize on early price shifts before the broader market has a chance to react the following day.
Strategic portfolio adjustments: After-hours trading can help investors make timely adjustments to their portfolios. Whether it’s hedging against losses, taking advantage of a sudden price drop, or reallocating assets based on after-market developments, this flexibility can be beneficial.
Global market influence: Since global events impact the stock market, after-market trading allows investors to react to developments occurring in foreign markets, geopolitical events, or economic indicators released outside U.S. trading hours. This can help investors stay ahead of potential market movements.

While after-market trading offers these advantages, it is essential to weigh the risks, such as lower liquidity, higher volatility, and wider bid-ask spreads, before participating. Understanding these factors can help investors make more informed and strategic trading decisions.

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Downsides of Trading After Hours

The act of trading any type of investment always carries a certain amount of risk. There are some unique factors to note, however, when it comes to after-market trading. Keep in mind that not every investor is trading after hours. When there are fewer people active, you might find it harder to buy or sell at a quick pace. This can result in a wider than-normal gap between the highest price offered by buyers (the bid) and the lowest price sellers are offering (the ask). You may also have a harder time converting shares to cash.

Not all stocks are able to be traded after hours. So if some breaking news releases, you might be out of luck if that company’s shares are unavailable during after-market sessions. Or, if you’re waiting until the end of the day to trade for the sake of convenience, your choices may be limited.

Volatility is also an issue with trading later in the day. Stocks may react differently to market or political news after hours, possibly resulting in more dramatic price swings. Even worse, a stock may not trade at the same price when the market opens the next day as it did when you bought or sold it after hours. Miscalculations in how a price will move can result in losses, though this doesn’t necessarily have to be the case.

Finally, after-market trading was once exclusively the domain of institutional investors. Individual investors who trade after hours may find themselves going up against these bigger investors, who likely have a deeper well of knowledge to draw from. That could put you at a disadvantage when trying to navigate this unique market.

Bottom Line

After-market trading might be worthwhile if you’re looking for more flexibility in building your portfolio or if you simply can’t trade during the day. Before you give it a try, connect with your brokerage to make sure that after-hours trading is an option. If it is, figure out what you can and can’t trade, as well as what fees, if any, might accompany your trades. Finally, determine if you can stomach the additional risk that comes with after-market trading.

Tips for Investing at Any Hour of the Day

Investing is a key to increasing your savings for the future, but many people don’t feel comfortable starting on their own. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you’re looking for a brokerage that allows for after-hours trades, take the time to compare the online accounts that are out there. Check for any applicable fees, rules or limitations to ensure the brokerage is a good fit for you.