What is Extended Hours Trading?

Extended hours trading is trading of securities which takes place after the securities markets have closed for the day. Historically, this option was only available to major institutions with access to specialized computer networks which allowed them to communicate with each other. Today, anyone can trade after hours, as long as they have an account with a brokerage. Although members of the general public can trade during extended hours trading, it is not necessarily recommended, because there are some definite risks.

Many nations have one or more major exchanges where the bulk of securities trading occurs, and as a general rule, trading is limited to their open hours. Major institutions and brokerages sometimes found this inconvenient in the past because they wanted to react to breaking news or move securities around, and they started trading with each other after hours. By the close of the 20th century, consumers were starting to access extended hours trading through electronic communication networks (ECN) and companies like AmeriTrade and E*Trade.

One issue with extended hours trading is that there is usually less liquidity, and people may have trouble meeting orders. For major companies, this may not be a major concern, but for individual traders, it can mean missing out on a deal or failing to execute a trade as anticipated. Trading also tends to be more volatile, and quotes are less reliable. It can be very easy to get into trouble because the big picture is often hard to see.

Brokers which offer extended hours trading to their clients usually allow them to do so over the computer or the phone. In both cases, one issue is that temporary lag or downtime in the system can develop into a problem, and can sometimes cost people money when their trades are executed incorrectly or at the wrong time. On the trading floor, traders can at least physically interact with each other to accomplish trades, but over the computer, a failure in communications results in a shutdown of trading.

Some people are very successful at extended hours trading, either because they have some skills with the stock market, or because they specialize in a particular area of the market and have become very knowledgeable about it. Other people are less successful, and may run into problems because the world of after hours trading can sometimes be quite confusing. People who are interested in this option should discuss it with their brokers.