Pre-Market and After-Hours Trading

Investing News

What Is Pre-Market and After-Hours Trading?

U.S. stock market exchanges—particularly the New York Stock Exchange (NYSE) and the Nasdaq—are typically open between 9:30 a.m. and 4 p.m. Eastern Time (ET). However, with the adoption of new technology and increased demand for trading, these hours have been extended to include what is known as pre-market and after-hours trading.

Some of the most important market moves can occur outside the NYSE and Nasdaq’s regular trading sessions.

Key Takeaways

  • The rise of electronic trading networks and a desire to be competitive caused the major U.S. stock exchanges to allow trading before and after the regular market hours of 9:30 a.m. to 4 p.m. ET in the early 1990s.
  • Pre-market trading typically occurs between 8 a.m. and 9:30 a.m., though it can begin as early as 4 a.m. ET.
  • After-hours trading starts at 4 p.m. and can run as late as 8 p.m. ET.
  • Known collectively as extended trading hours, the pre-market and after-hours sessions carry several risks: illiquidity, price volatility, and low volume/lack of participants.
  • Pre-market and after-hours trading occurs exclusively through electronic communication networks (ECNs).

How Pre-Market and After-Hours Trading Works

Because an exchange does not facilitate pre-market and after-hours trading, trading works differently. Exchanges are not involved, so electronic communications networks handle the trades digitally.

Pre-Market

Before the market opens, traders can log into their brokerage accounts and look for opportunities to get ahead of the market, especially if reports are being released during the trading day. Then, traders can place orders through their brokers. Generally, these orders can only be limit orders, where traders place an order to buy or sell a specific quantity of an equity at a certain price.

Brokers may also have specific pre-hour trading criteria—for example, Schwab allows you to place limit orders between 8:05 p.m. ET (previous trading day) and 9:25 a.m. ET for execution between 7:00 a.m. ET and 9:25 a.m. ET.

After-Hours

After-hours trading works like pre-market trading; a trader can log into their brokerage account and place limit orders for their brokers to execute. For instance, Schwab’s after-hours trading lets you place orders between 4:05 p.m. ET and 8:00 p.m. ET and executes the orders through the electronic market.

Brokerages That Offer Pre-Market and After-Hours Trading

Several brokers allow pre-market and after-hours trading. Some of the most used are:

  • Charles Schwab
  • Robinhood
  • Fidelity
  • WeBull
  • E*Trade
  • TD Ameritrade

How Pre-Market and After-Hours Trading Affects Stock Prices

One issue that arises when trading pre-market or after-hours is that there is not as much liquidity or trade volume because of the lower amount of traders. However, stock prices tend to act the same as they do during the trading day.

Additionally, stock prices can change from closing price because after-hours and pre-market traders may have access to information that regular-hour traders did not. Prices might rise or fall based on extended hours trading and can carry forward to the next regular trading session.

Where to Find Off-Hours Market Data

The first place investors should look to find information about pre-market and after-hours activity is their brokerage account’s data service, if they have one. Brokerage information services often provide the most detailed off-hours market trading data and usually come free with a brokerage account. Traders will often be able to not only trade within this period but also see the current bid and ask prices for specific securities and the change in prices compared to a previous period’s close.

If you don’t have a brokerage account or your broker doesn’t provide this service, several free sites give you access to pre-market and after-hours data. For example, the Nasdaq website offers comprehensive quotes on shares listed on the Nasdaq, showing every trade—including the price, time, and size of trades made in off-hours trading.

Pre-market and after-hours trading are also known collectively as extended trading.

For pre-market trading information, use the pre-market quotes service, and for after-hours details, use the after-hours quotes service. Although the NYSE’s website does not offer such a detailed service in terms of depth, the quoting service on its site shows you the last movements of the stocks during the off-hours market.

Other services, such as Yahoo Finance, will show the last trade made in the pre-market and after-hours markets. These services will usually cover all stocks, whether they trade on the NYSE, Nasdaq, or another exchange.

The Pre-Market Hours

The pre-market is a period of trading activity that occurs before the stock market opens. Though its trading session typically occurs between 8 a.m. and 9:30 a.m. ET each trading day, several direct-access brokers allow access to pre-market trading to commence as early as 4 a.m.

However, very little activity occurs for most stocks so early in the morning unless there is news. The liquidity is also extremely thin, with most stocks only showing stub quotes. So although pre-market trading allows for an early jump on reactions to news—especially events that occur in Europe or the U.K.—the limited volume can furnish a deceptive perception of a stock’s strength or weakness. Trading during these hours can be risky due to the possible slippage from vast bid-ask spreads.

Most early birds wait to begin pre-market access at 8 a.m. Pre-market trading can only be executed with limit orders through electronic communication networks (ECNs), such as NYSE Arca, Instinet, and Bloomberg Tradebook.

The After-Market Hours

The New York Stock Exchange introduced after-market trading in June 1991 by extending trading hours by an hour. The move was a response to increased competition from international exchanges in London and Tokyo and private exchanges, which offered more trading hours.

Today, after-hours trading starts at 4 p.m. ET and can run as late as 8 p.m., although volume typically thins out much earlier in the session; the majority is done by 6:30 p.m. As in the pre-market hours, trading in the after-hours is conducted through ECNs.

After-hours trading is something traders or investors can do if news breaks after closing. The changes in share prices during the after-hours are a valuable barometer of the market reaction to the new information released. However, after-hours price changes are more volatile than regular-hours prices: As with the pre-market, illiquidity and lack of volume can pose a problem. Institutional investors or major investors may choose not to participate in after-hours trading, regardless of the news or the event. As a result, a stock can fall sharply after-hours only to rise when the regular trading session resumes the next day.

Pros and Cons of Pre- and Off-Hours Trading

Pros

  • Convenient for retail investors

  • Can trade the news and releases

  • Trade before other traders

Cons

  • Low liquidity

  • Volatility

  • Limited Quotes

  • Limit orders only

Pros Explained

  • Convenient for retail investors: Pre-market and after-hours trading is convenient for working professionals or others busy during regular trading hours because it allows them to trade after-hours.
  • Can trade the news and releases: It enables traders to trade based on news items, such as earnings reports published after regular trading hours.
  • Trades before other traders: Pre-market and after-hours trading enables traders to move ahead of others by placing orders ahead of the next day’s schedule.

Cons Explained

  • Low liquidity: Pre-market and after-hours trading is characterized by illiquidity or deficient levels of liquidity, meaning there is no guarantee that a particular trade will be executed.
  • Volatility: Pre-market and after-hours trading has low volume, which can result in volatility and price swings because there are few participants.
  • Limited Quotes: You can only trade on the quotes your broker provides you.
  • Limit orders only: Only limit order types are available during pre-market and after-hours trading.

Does After-Hours Affect Pre-Market?

After-hours might affect pre-market prices and volume based on the information after-hours traders used to make trades. Both extended hour sessions can affect regular hour trading as well.

What Time is Pre-Market and After-Hours Trading?

Pre-market trading generally takes place between 4 a.m. ET and 9:30 a.m. ET. After-hours trading usually takes place from 4 p.m. ET to 8 p.m. ET. Some brokers allow their users to place orders from market close until pre-market opening for execution for after-hours and pre-market trading.

Can You Buy During Pre-Market Hours?

You can place buy and sell limit orders during pre-market hours. Some brokers allow you to enter orders from market close to pre-market open; the orders are queued until the pre-market opens at 4 a.m. ET.

The Bottom Line

Pre-market and after-hours trading is conducted outside of regular trading hours through ECNs that match buyers with sellers. Though they enable traders to react to news items that occur outside of regular trading hours, pre-market and after-hours trading carries several risks, such as illiquidity and price volatility. Such trading also enables traders to trade based on news items, such as earnings, that occur after regular trading hours.

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