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Extended trading is trading carried out beyond the normal operating hours for a securities exchange. Typically, markets are open for extended trading before their official opening time and again for several hours after their official closing time. This provides opportunities for traders to take advantage of shifting market conditions and activities in markets in other time zones. Traders can also be involved in online trading at all hours, accessing databases allowing for instant securities trading.
Usually, trading activity during extended trading is more limited. Historically, it was only available to large firms and big investors. Thanks to the advent of electronic trading systems, smaller investors have been able to become involved as well. This has benefits and drawbacks; on the one hand, people interested in trading have more opportunities, but on the other, smaller traders can get into trouble during extended trading because it tends to be more volatile than trading during regular hours.
Some firms limit the types of orders placed and may only allow round lots, not odd lots. Some orders expire at the end of extended trading, while others do not and this is important to be aware of when placing an order. In addition, volume of trading may be more controlled. This can put traders in uncomfortable positions as their options are not as flexible.
Typically, liquidity is reduced during extended trading. This can also cause problems for traders, especially small traders used to liquidity during daytime trading. Quote availability can also be limited or delayed. While efforts are made to ensure that quotes are current and readily available, this isn't always possible. The increased volatility of after-hours trading is also a consideration, as people respond to late or early-breaking news, shifts in markets in other countries about to close for the day, and other issues.
Traders interested in being involved in extended trading can check with their brokerages to see if it is offered and to learn more about the kinds of orders their brokers will accept. They can also look into electronic trading systems if they want to trade directly. Companies manufacturing such systems provide tutorials for people interested in working with them and it is also possible to attend classes with other traders to learn more about how trading systems are used, and how to trade safely and effectively during extended hours, when conditions are very different from regular trading hours.