In the United States, the normal trading hours for most stocks are from Monday to Friday, from 9:30 AM to 4:00 PM Eastern Time, including the two largest exchanges – the New York Stock Exchange (NYSE) and the Nasdaq Stock Market. With the adoption of new technologies and an increase in trading demand, these hours have extended to include what is known as pre-market and after-hours trading. This article provides a comprehensive overview of the basic concepts of pre-market and after-hours trading, including trading hours, their impact on stock prices, and their advantages and disadvantages. By reading this article, you will gain a clear understanding of pre-market and after-hours trading.

Definition

Pre-market trading allows investors to buy or sell stocks or ETFs before the official market opening. Pre-market trading typically occurs between 4:00 AM and 9:30 AM Eastern Time, with the earliest starting time at 4:00 AM.

After-hours trading permits investors to continue buying or selling stocks or ETFs after the market closes. This time period usually begins at 4:00 PM Eastern Time and can extend until 8:00 PM.

Pre-market and after-hours trading, collectively referred to as extended trading hours, take place through electronic communication networks (ECNs) and occur outside centralized exchanges like the New York Stock Exchange. Extended trading hours often involve higher risks compared to regular trading hours.

*ECN refers to one or multiple electronic communication networks where orders can be submitted for brokers to display and execute. ECNs electronically match buyers and sellers to execute limit orders. Traders can also execute extended trading orders at prices equal to or better than the ECN's best bid or ask price.

How It Works

Since pre-market and after-hours trading occurs outside of regular exchange hours and operates through electronic communication networks (ECNs), there are no standardized regulations imposed by exchanges. Each brokerage firm may have different rules for trading during non-market hours.

For instance, when using a Fidelity brokerage account, you can only place certain types of orders during extended trading hours, including buy, buy-to-cover, sell, or sell-short orders. Additionally, all orders must be limit orders. Orders for the pre-market session can only be entered and executed between 7:00 AM and 9:28 AM Eastern Time, while short-sale orders are limited to the timeframe from 8:00 AM to 9:28 AM Eastern Time. Orders during the after-hours session can be entered and executed between 4:00 PM and 8:00 PM Eastern Time.

If you use a Schwab brokerage account, you can place limit orders between 8:05 PM (previous trading day) and 9:25 AM Eastern Time, with executions occurring between 7:00 AM and 9:25 AM Eastern Time.

The pre-market and after-hours trading processes closely resemble regular trading hours. Simply log in to your online brokerage account, view available stocks, and choose the ones you want to trade. However, it's crucial to be aware of the specific regulations set by your chosen brokerage before engaging in pre-market or after-hours trading.

How It Affects Stock Prices

Economic Indicators

Economic indicators play a crucial role in shaping the price trends during the pre-market trading session. Most significant economic data releases occur at 8:30 AM Eastern Time, an hour before the New York market opens. The pre-market market's reaction to these data releases can lead to substantial price fluctuations, setting the tone for the entire day. For example, the “Employment Situation Summary” released by the U.S. Bureau of Labor Statistics on the first Friday of each month at 8:30 AM Eastern Time is a major release with significant market impact. Other impactful indicators include retail sales, Gross Domestic Product (GDP), and weekly initial jobless claims.

Listed Company Financial Reports

Financial reports from listed companies typically influence stock prices during both pre-market and after-hours trading. For instance, if a company's financial report significantly exceeds expectations, it may substantially boost the company's stock price. Moreover, if the company is an industry leader, its performance can even impact the entire industry's trends. The pre-market trends can set the tone for the entire day or even the upcoming days. The earnings season, characterized by the release of quarterly financial reports by listed companies, begins one to two weeks after the end of each quarter. Most companies release their earnings in January (early to mid-month), April, July, and October. During this period, it is essential not to miss these critical data releases.

Major News Events

Major news events typically occur without a clear pattern, and since the U.S. stock market is only open for a fraction of the day, statistically significant events are more likely to happen during non-trading hours. These events can include wars, political incidents, unexpected natural disasters, and more. Such events can occur at any time, catching the market off guard.

Advantages and Disadvantages

Advantages

More Flexible Trading Hours

Provides opportunities for trading outside traditional market hours, allowing investors to engage in buying and selling at more convenient times, particularly beneficial for those with busy schedules during regular trading hours.

Timely Response to News Events

Enables investors to respond to news events outside regular market hours, especially crucial information such as quarterly financial reports released by companies after normal trading hours. Investors have the opportunity to trade immediately after announcements, allowing for more flexible position management.

Early Market Participation

Investors can gain a competitive edge by participating in pre-market and after-hours trading before or after the regular market hours, providing an additional time window to get involved in the market and formulate trading strategies.

Disadvantages

Higher Volatility

Due to the relatively lower number of participants, stock price volatility tends to significantly increase compared to the regular trading hours. This heightened volatility exposes investors to greater risks.

Lower Liquidity

The pre-market trading session experiences lower liquidity due to fewer participants, and there is no guarantee that specific trades will be executed. Even if a trade is executed, it may face substantial bid-ask spreads.

Limited Order Types

During the pre-market trading session, typically only limit orders and market orders are effective, while other types of orders may be restricted. Additionally, investors are constrained to trade based on the limited quotes provided by their brokers.

FAQs

Can I buy stocks over the weekend？

No, weekend market hours do not extend.

Which financial instruments can I trade in pre-market and after-hours？

Generally, you can trade stocks and ETFs during extended trading hours. Depending on the specific situation, ETFs may have longer trading hours, possibly trading overnight, 24 hours a day, or five days a week. You can also engage in forex market trading 24 hours a day, five days a week. Cryptocurrencies can be traded at any time as they operate without specific trading hours.

How can I access market data during non-trading hours？

You can use the information services provided by your brokerage account to access detailed market data during non-trading hours. This service is typically offered for free. If you don't have a brokerage account or if your broker doesn't provide this service, you can access pre-market and after-hours data through several free websites. For instance, the Nasdaq website provides comprehensive quotes for Nasdaq-listed stocks, displaying details of each transaction, including prices, times, and trade sizes during non-trading hours.

Does after-hours trading impact pre-market trading？

Depending on the information used by after-hours traders, after-hours trading may influence pre-market prices and trading volumes. Both of these extended trading sessions can have an impact on regular trading hours.

Bottom Line

Pre-market and after-hours trading offer investors more flexible trading opportunities, allowing them to operate outside traditional trading windows, promptly respond to news events, and get ahead of other traders before or after regular market hours. This provides investors with an additional time window, enabling them to engage in the market earlier and formulate trading strategies.

However, these advantages come with some drawbacks, including increased volatility, lower liquidity, and restrictions such as the use of limit and market orders only during pre-market trading hours. When leveraging pre-market and after-hours trading, investors need to carefully consider these factors and understand the regulations set by their respective brokers.