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What is After-Hours Trading?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 14 October 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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As a means of meeting the demands of the modern world, after-hours trading involves the ability to engage in the trading of stocks and securities after the regular hours of operation of the market has passed for the day. Here are some examples of how individual investors can engage in the buying of securities, as well as the selling of securities, in between the closing times of the world markets and before they open for the next business day.

Traditionally, after-hours trading has been more closely associated with any type of trading that took place after the exchanges located in the United States have closed for the business day. Prior to 1999, this type of after-hours trading tended to be limited to large scale trading conducted by trading professionals and institutional investors. An electronic trading network, often called an ECN for short, was the main process whereby after-hours trading was conducted. As a private network, access to an ECN was rigidly controlled. Individual investors had no access to any of the existing electronic trading networks and thus were not able to engage in after-hours trading without the assistance of an authorized trading entity.

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However, the year 1999 saw a change in this process. Owing to the growing popularity of the Internet and access by individual investors, after-hours trading began to be common for just about anyone who wished to buy and sell stocks any time of the day or night. While individuals who wanted to conduct after hours trading still had a basic criteria to meet in order to participate, they no longer had to go through an investment firm to do so.

Today, there are several trading networks that are open to individual traders. One of the largest and better-known ECN’s is Instinet, which is operated by Reuters. The network provides and easy to use structure that allows buyers to meet sellers online and forge working relationships. A second popular option is Island ECN, which has a focus on after-hours trading but is also easily used during standard market hours. Island ECN has also applied to the Securities and Exchange Commission in the United States for recognition as a new stock exchange.

Currently, there are two other options to the use of electronic trading networks. One example is the United States exchange after-hours trading market. These are somewhat limited in the time frame where buying and selling can occur, usually limited to within a couple of hours after the markets close. Some foreign exchange after-hour markets also trade some stocks that are listed with the NYSE in the United States, and it is possible to use those avenues as a mean of buying and selling after the New York Stock Exchange has closed for the day.

More popular than ever, after-hours trading has made it possible for investors to essentially ignore the time of day and physical location when it comes to buying and selling stocks. In a world that increasingly interactive and working twenty-fours hours a day, the use of after-hours trading is certainly likely to continue to expand as time goes on.

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