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What Is After-Hours Trading? How Do You Do It?

Nadia Ahmad, CEPF®
·4 min read
Image shows a trader sitting in front of their computer monitors in order to see the latest stock price information during after-hours trading.
Image shows a trader sitting in front of their computer monitors in order to see the latest stock price information during after-hours trading.

After-hours trading happens outside the standard hours during which a stock exchange (such as the Nasdaq or New York Stock Exchange) is open. This trading can fall under post-market trading, which happens between 4:00 p.m. and 8:00 p.m., or pre-market trading that occurs in the morning before 9:30 a.m. A financial advisor could be better equipped to help answer any questions about how after-hours trading and investing might fit into your larger financial goals and plans. Here’s a breakdown of how after-hours trading works.

Who Can Trade After Hours, and Where?

In a pre-internet era, only institutional investor and high-net-worth individuals were able to trade during after-hours trading sessions, but changes in technology have made it possible for more average investors to partake. Instead of placing an order on the exchange as one might during the day, an order goes to an electronic communication network (ECN). Investors can only issue limit orders to buy or sell shares. The ECN matches investors’ orders based on those set limits and only confirms orders that match.

How Do You Trade After Hours?

Two traders consult each other on some after-hours trades.
Two traders consult each other on some after-hours trades.

To trade after hours, an investor logs into their brokerage account and selects the stock they want to buy. Then they place a limit order. (The broker may charge extra fees, which is something to watch out for.)

The broker then sends the order to the ECN that they use for after-hours trading. The ECN tries to match the order to a corresponding buy or sell order on the network. For example, if you put in an order to buy 200 shares of stock in the ABC Thingamajig Company for $10 each, the ECN will look for an order to sell at least that many shares at that price. If a match for the order is available via the ECN, the trade is executed. In terms of the time it takes to settle the order, the times are the same as during regular trading sessions.

Pros and Cons of After-Hours Trading

There are various advantages and disadvantages to after-hours trading. Some advantages include being able to invest after standard business hours, meaning that if you are a more novice investor and perhaps consider this more of a hobby or don’t have time to do it during the work day, you can make time outside of the work day to do so. After-hours trading can also help you as an investor react or take action based on latest earnings updates and news that happened outside of normal market hours.

Some disadvantages include added broker fees (which you do need to watch out for anyway), and that’s if your brokerage company has the capacity to offer after-hours trading in the first place. Also, there is limited information about pricing — you only get pricing information from the ECN used by your broker. There are fewer market participants outside of standard market hours, so there will be limited liquidity for most stocks. Additionally, not all stocks are available to be traded after hours, resulting in limited options.

Even if a particular stock is available, again, the execution of a trade depends on the ECN finding a match for your order, which may not happen if there are fewer participants in the market. Additionally, volatility can be an issue if many people are reacting to a news item at the same time that they learn more about the occurrence. Sometimes less experienced investors won’t be able to understand whether they should react immediately or wait before making a call about a particular stock.

Bottom Line

A trader sits in front of their computer and analyzes stock information from some after-hours trades.
A trader sits in front of their computer and analyzes stock information from some after-hours trades.

Advances in technology have made trading after standard market hours available to more and more investors. With both post-market hours and pre-market hours open for trading, albeit in a limited way, investors can use ECNs, limit orders and further advice from their broker to make specific trades and take advantage of the time outside of the normal business day.

Tips for Traders

  • If you’re thinking about working with a financial professional, it’s a good idea to compare your options. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

  • Always remember to diversify your portfolio according to your risk tolerance and time horizon. You can determine your own asset allocation based on a combination of these factors. This means that your investments may range from different kinds of stocks and bonds to mutual funds, alternative investments and more.

Photo credit: ©iStock.com/Andrija Nikolic, ©iStock.com/gorodenkoff, ©iStock.com/eclipse_images

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