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Extended Trading: What It Is, How It Works, and Why It Matters

Extended Trading – In the fast-paced world of financial markets, opportunities can arise beyond the regular trading hours. Extended trading, also known as after-hours trading, allows traders to buy and sell stocks and other securities outside the traditional market session. This additional trading time can provide access to crucial market movements, news releases, and potential profit opportunities.

Extended Trading is the activity of trading securities before or after the official trading hours of a stock exchange. Extended trading allows investors to act quickly on news and events that occur outside of the regular market hours, and to take advantage of price movements that may not be reflected in the next day’s opening prices. It can also provide more flexibility and convenience for investors who have different time zones or schedules.

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What Is Extended Trading?

Extended-trading is trading that takes place on electronic marketplaces outside of the normal trading hours of a stock exchange. In the U.S., the major stock exchanges, such as the New York Stock Exchange (NYSE) and the Nasdaq, have official trading hours of 9:30 a.m. to 4:00 p.m. Eastern Time (ET) from Monday to Friday, except on holidays. However, extended trading can occur before or after these regular hours through electronic communication networks (ECNs).

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ECNs are computerized systems that automatically match buy and sell orders for securities in the market. ECNs can be operated by broker-dealers, exchanges, or other trading centers. ECNs allow investors to trade directly with each other without going through a middleman, such as a market maker or a specialist. ECNs also provide more transparency and anonymity for traders, as they can see the best available bid and ask prices and execute their orders anonymously.

How Does Extended Trading Work?

To participate in extended-trading, investors need to have an account with a broker that offers access to ECNs. Not all brokers offer extended trading services, and some may charge higher fees or commissions for extended trading than for regular trading. Investors also need to check with their brokers about the rules and restrictions that apply to extended trading, such as the types of securities that can be traded, the types of orders that can be placed, and the minimum and maximum order sizes.

Most brokers require investors to place limit orders during extended trading sessions. A limit order is an order to buy or sell a security at a specific price or better. Unlike a market order, which is executed at the best available price at the time of order placement, a limit order may not be executed if the market price does not reach the limit price. Limit orders help investors control their entry and exit prices and avoid slippage during extended trading.

Some brokers may also offer stop orders or stop-limit orders during extended trading sessions. A stop order is an order to buy or sell a security when it reaches a certain price level, known as the stop price. A stop order becomes a market order once the stop price is triggered. A stop-limit order is similar to a stop order, but it becomes a limit order instead of a market order once the stop price is triggered.

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Benefits of Extended Trading

Opportunity

It can provide investors with more opportunities to react to news and events that occur when the market is closed, such as earnings reports, economic data releases, political developments, or natural disasters. These events can have a significant impact on the prices of securities and create arbitrage opportunities for investors who can trade before others.

Flexibility

It can provide investors with more flexibility and convenience to trade according to their time zones or schedules. For example, investors who live on the West Coast can trade in the morning before going to work, while investors who live overseas can trade in their local time without having to stay up late or wake up early.

Competition

It can provide investors with less competition from other traders, especially institutional investors who tend to dominate the regular market hours. This can result in lower volatility and narrower bid-ask spreads during extended trading sessions.

Risks of Extended Trading

Liquidity

Extended trading typically has lower liquidity than regular trading hours, which means that there are fewer buyers and sellers in the market. This can make it harder to execute orders at favorable prices or at all during extended trading sessions. Some securities may not trade at all during extended trading, especially those that are less popular or more volatile.

Volatility

It can also have higher volatility than regular trading hours, which means that the prices of securities can fluctuate more rapidly and unpredictably during extended trading sessions. This can be caused by lower liquidity, wider bid-ask spreads, or unexpected news or events. Higher volatility can increase the risk of losing money or missing out on profitable opportunities during extended trading.

Uncertainty

It can also have more uncertainty than regular trading hours, which means that the prices of securities during extended trading may not reflect the true market value or the opening prices of the next day. This can be caused by limited information, different market participants, or different market conditions during extended trading sessions. Uncertainty can increase the risk of making inaccurate or irrational decisions during extended trading.

What Does It Mean for Individual Investors?

It can be a useful tool for individual investors who want to take advantage of more trading opportunities, flexibility, and competition outside of regular market hours. It also comes with more challenges, risks, and costs than regular trading hours. Therefore, individual investors need to weigh the pros and cons of extended-trading carefully and understand the rules and restrictions that apply to their brokers and ECNs.

Individual investors also need to have a clear trading strategy and plan before entering extended trading sessions. They need to do their research, monitor the market trends, set their entry and exit prices, and manage their risk exposure. They also need to be aware of the potential pitfalls and pitfalls of extended trading, such as lower liquidity, higher volatility, and more uncertainty. They should not trade on impulse, emotion, or speculation during extended trading sessions.

Extended-trading is not for everyone. It is suitable for investors who have more experience, knowledge, and discipline in trading securities. It is also suitable for investors who have specific goals, needs, or preferences that cannot be met by regular trading hours. For most investors, however, regular trading hours may provide enough opportunities, efficiency, and stability to achieve their investment objectives.

Frequently Asked Questions (F&Qs)

What are time-extended trading hours?

Extended-trading hours, also known as pre-market and after-hours trading, are the times outside of regular trading hours when investors can trade stocks. Regular trading hours are typically from 9:30 a.m. to 4:00 p.m. Eastern Time (ET).

Pre-market trading hours typically start at 4:00 a.m. ET and end at 9:30 a.m. ET. After-hours trading hours typically start at 4:00 p.m. ET and end at 8:00 p.m. ET.

Who can trade in extended hours?

Anyone can trade in extended-hours, as long as they have a brokerage account that allows it. However, there are some restrictions on who can trade in extended hours. For example, some brokerages only allow institutional investors to trade in extended hours.

What time does extended-hours trading end?

Extended-hours trading ends at 8:00 p.m. ET. On the New York Stock Exchange (NYSE), extended-hours trading ends at 6:30 p.m. ET.

Exchange Pre-market After-hours
NASDAQ 4:00 a.m. ET – 9:30 a.m. ET 4:00 p.m. ET – 8:00 p.m. ET
NYSE 4:00 a.m. ET – 9:30 a.m. ET 4:00 p.m. ET – 6:30 p.m. ET
BATS 4:00 a.m. ET – 9:30 a.m. ET 4:30 p.m. ET – 8:00 p.m. ET

 

Does extended hours count as day trading?

No, extended hours trading does not count as day trading. The definition of day trading is the buying and selling of the same security on the same day. This can happen during regular trading hours or extended hours. However, for the purposes of the pattern day trader (PDT) rule, only trades that occur during regular trading hours are counted.

What is the difference between market close and extended hours?

Market close is the time when regular trading hours on a stock exchange end. This is typically around 4:00 p.m. Eastern Time (ET) for the New York Stock Exchange (NYSE) and Nasdaq. After the market close, trading can still take place in extended hours, but there is typically less liquidity and volatility during this time Extended hours are the times outside of regular trading hours when trading can still take place on a stock exchange. This typically includes the premarket, which is the time before regular trading hours start, and the after-hours, which is the time after regular trading hours end.

What is extended-hours trading fidelity?

Fidelity offers extended-hours trading, which allows Fidelity brokerage customers to trade certain stocks on Fidelity.com before and after the standard hours of the major U.S. stock exchanges and Nasdaq.

  • Premarket: Fidelity accepts premarket orders from 7:00 a.m. to 9:28 a.m. ET.
  • After-hours: Orders in the after-hours session can be entered and executed beginning at 4:00 p.m. The after-hours session begins at 4:00 pm ET and ends at 8:00 pm ET.
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