Trading isn’t just confined to the standard stock exchange hours. There exists an entire domain of trading activities that occur prior to the market’s official opening and after its scheduled closure. These are referred to as premarket trading and after-hours trading.
Defining Pre-Market and After-Hours Trading
Pre-market trading, specifically, occurs between 4 a.m. and 9:30 a.m. ET, allowing traders to engage in early morning activities. After-hours trading, on the other hand, commences at 4 p.m. ET and can continue until 8 p.m. ET, enabling trading activities beyond the usual market close.
Together, these extended trading periods are collectively referred to as extended trading hours, offering increased flexibility for market participants.
How Pre-Market and After-Hours Trading Works
During pre-market and after-hours trading, exchanges do not facilitate the trades. Instead, these trades are handled digitally through electronic communication networks (ECNs). These ECNs match buyers with sellers, bypassing the need for a traditional stock exchange.
Pre-Market Trading
Before the market opens, traders can access their brokerage accounts to identify potential trading opportunities, particularly if important reports are due to be released during the trading day. These traders can then place limit orders through their brokers.
After-Hours Trading
The process of after-hours trading mirrors that of pre-market trading. Traders can log into their brokerage accounts, place limit orders for their brokers to execute, and these orders are fulfilled through the electronic market.
Brokerages Offering Pre-Market and After-Hours Trading
Several brokerages allow pre-market and after-hours trading. Some of the most popular ones include:
- Charles Schwab
- Robinhood
- Fidelity
- WeBull
- E*Trade
- TD Ameritrade
Each brokerage has its unique rules and trading hours for pre-market and after-hours trading.
Impact of Pre-Market and After-Hours Trading on Stock Prices
During pre-market and after-hours trading, liquidity levels are typically lower due to a fewer number of traders. However, stock prices generally follow similar trends as they would during regular trading hours.
Additionally, stock prices can deviate from closing prices, as traders during extended hours may have access to new information that was not available during regular trading hours.
Where to Find Off-Hours Market Data
Investors can access information about pre-market and after-hours activity through their brokerage account’s data service. These data services often provide the most detailed off-hours trading data and are usually free with a brokerage account.
If a brokerage account isn’t available or doesn’t provide this service, several free sites offer pre-market and after-hours data. For example, the Nasdaq website offers comprehensive quotes on shares listed on Nasdaq.
Recent Movers
On October 28, 2023, U.S. stock futures demonstrated a positive trend on Friday, as Wall Street aimed to recuperate from the significant losses experienced earlier in the week. Amazon, powered by robust quarterly results, also provided a substantial boost to tech-related shares.
Nasdaq 100 futures displayed a substantial uptick of 0.9%, emphasizing the market’s robust performance. Nonetheless, engaging in trading throughout these extended hours introduces a set of inherent risks, including reduced liquidity and heightened price volatility.
Amazon (AMZN)
Amazon’s stock witnessed a significant surge of almost 6% in response to the e-commerce giant’s remarkable performance in the third quarter. Notably, Amazon exceeded the projections of analysts for both revenue and earnings during this period.
This impressive feat by Amazon had a favorable impact on other prominent technology companies, such as Alphabet and Microsoft, both of which also saw their stock prices rise during premarket trading.
Ford Motor Company (F)
Ford faced a setback with a 3% decline after the company fell short of third-quarter earnings expectations and withdrew its guidance for the year.
The cited reason for this adjustment was the impact of the UAW strike. Ford premarket price is $10.97, reflecting a decrease of $0.38, equivalent to a decline of 3.35%, as of 7:31 AM EDT during pre-market trading.
The Risks and Benefits of Pre-Market and After-Hours Trading
Advantages of Pre-Market and After-Hours Trading
- Convenience for Retail Investors:
Pre-market and after-hours trading offer a convenient option for working professionals or individuals who may be busy during regular trading hours.
- Opportunity to Trade on News and Releases:
Extended trading hours enable traders to react to news items such as earnings reports published after regular trading hours.
- Getting Ahead of Other Traders:
Traders can place orders ahead of the next day’s schedule, allowing them to potentially get ahead of other traders.
Risks Associated with Pre-Market and After-Hours Trading
- Low Liquidity: Pre-market and after-hours trading often have low liquidity levels, which means there’s no guarantee that a trade will be executed.
- Volatility: Due to the low volume of trades during extended hours, prices can be volatile and may swing significantly.
- Limited Quotes: Traders can only trade based on the quotes provided by their broker.
- Limit Orders Only: Only limit order types are available during pre-market and after-hours trading.
The Bottom Line
Pre-market and after-hours trading offer a unique opportunity for traders to react quickly to news and events happening outside of regular trading hours.
Nonetheless, engaging in trading throughout these extended hours introduces a set of inherent risks, including reduced liquidity and heightened price volatility.