After-Hours Trading - Explained
What is After-Hours Trading?
Written by Jason Gordon
Updated at April 17th, 2022
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Table of Contents
What is After-Hours Trading?How Does After-Hours Trading Work?Key Takeaways Academic Research on After-Hours TradingWhat is After-Hours Trading?
After-hours trading is a period when normal buying and selling of securities in the exchange market has closed. It is a term that describes trading activities done after the closing hours. After-hours trading can also refer to trading that happened before the opening of a stock exchange for trade. For instance, the United States Stock exchange closes at 4 PM U.S. Eastern Time, any trade done after this time is after-hour trading. After-hours trading is also referred to as extended-hours trading which is a trade that occurs after the close of the market or before the opening of a trading day.
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How Does After-Hours Trading Work?
In After-hours trading, trading activities are carried out through electronic communication networks (ECNs). The volume of trade at the period is often lower than the normal volume of trade during the normal trading day. There are certain mechanics peculiar to after-hours trading they are;
- The Spark: This refers to something that triggers after-hours trading. For instance, breaking news, stock releases, and conferences that hold after the close of a trading day can trigger after-hour trading where traders will either want to sell or buy stock.
- Price: Stock in after-hours trading trade at a premium, there is often a significant spread between the price of a normal trading day and after-hours trade.
- Volume: The volume of trade in after-hours trading is often thin, on certain days when there is release about progress in the stock market, the volume of trade may be high.
- Participation: Usually, there is little participation of traders in after-hours trading. However, the level of participation in this trade is determined by liquidity and prices at which stocks are trading at.
Key Takeaways
Here are some crucial points to know about after-hours trading;
- After-hours trading refers to trading that commences after the normal trading day.
- In the U.S stock Exchange, any trading that starts after 4 PM is after-hours trading. Such trade can last till 8 PM or even more depending on the trading activities for the day.
- Stock in the after-hours trading is not as liquid as those in the normal trading day.
- The volume of trade is after-hours trading is often thin and the prices are at a premium.