Extended Trading
What Is Extended Trading?
Extended trading will be trading led by electronic organizations either before or after the normal trading hours of the listing exchange. Such trading will in general be limited in volume compared to ordinary trading hours when the exchange is open.
Pre-market trading in the United States, in terms of stocks, as a rule runs between 4:00 a.m. also, 9:30 a.m. Eastern Time and after-hours trading normally runs from 4:00 p.m. to 8:00 p.m. Eastern Time (EST). The U.S. stock exchanges are open from 9:30 a.m. to 4:00 p.m. EST.
Grasping Extended Trading
Electronic Communication Networks (ECNs) have democratized extended hours trading and even retail investors have an opportunity to place trades outside of normal exchange hours. Extended trading allows investors to act rapidly on news and events that happen when the exchange is closed, making it a fantastic indicator for predicting the open market heading.
Most brokers expect traders to enter limit day orders during extended trading sessions since the lack of liquidity makes market orders risky.
Moreover, most brokers just permit extended trading on [Reg NMS](/guideline nms) securities. Over-the-counter securities, many types of funds, a few options, and other markets might be untouchable during extended trading hours.
Extended Trading Hours
The majority of extended trades will generally happen right around ordinary trading hours. This is on the grounds that most news that influences investors happens either shortly before or shortly after the exchanges open or close.
Investors in the United States can generally begin trading at 4:00 a.m., yet the majority of extended trading happens between 8:00 a.m. furthermore, 9:30 a.m. EST. Essentially, investors might trade until 8:00 p.m. after the stock exchanges close, yet the majority of extended trading happens before 6:30 p.m.
On the off chance that there is a major news event that happens before the exchange opens, or after the exchange closes, there can be critical extended trading volume. Albeit, in general volume is lower in the extended hours when compared to the volume during the hours the exchange is open.
A few stocks and exchange traded funds (ETFs) do critical volume in the pre-and post-market (extended hours), while other stocks do very little or none.
The U.S. options and futures markets will quite often have different trading hours relying upon the underlying assets, while the foreign exchange (forex) market works 24 hours out of each day.
Extended Trading Risks
The U.S. Securities and Exchange Commission (SEC) features several risks associated with extended trading, including:
- Limited Liquidity: Extended hours have less trading volume than standard hours, which could make it challenging to execute trades. A few stocks may not trade by any means during extended hours.
- Large Spreads: Less trading volume frequently means more extensive bid-ask spreads, which can adversely influence the market price for execution, making it harder to execute orders at favorable prices.
- Increased Volatility: Less trading volume frequently establishes an environment for greater volatility given the more extensive bid-ask spreads. Prices can move radically in a short amount of time.
- Dubious Prices: The price of a stock trading outside of ordinary hours may not closely match the price during normal hours.
- Proficient Competition: Many extended trading participants are large institutional investors, for example, mutual funds, that approach more resources.
Extended Trading Opportunities
All the risk of extended-hours trading can likewise be opportunities in the event that a participant can get on the right of the action. For instance, a stock might have closed at $57, yet setting a bid to buy at $56 or $55 may get set off in extended trading since there are less bids out and if somebody has any desire to sell they might sell to $56 or $55 even however the price was $57 just minutes prior. The stock might even take care of requests at $54 and $60, for instance, before opening the next day around $57 once more.
The ability to trade during extended hours additionally offers investors and traders the chance to react immediately to the news which comes out when the exchange is closed. On the off chance that a company reports poor earnings, the stock will probably begin to drop and the trader can exit their position sooner, rather than trusting that the exchange will open. When the exchange opens significantly more selling might have occurred, and the price could be a lot of lower.
Illustration of Extended Trading in the Stock Market
The following chart shows the extended trading session on Twitter Inc. (TWTR) on a run of the mill day with no major company declarations.
The stock closes for trading on the exchange at 4:00 pm. Prior to 4:00, the one-minute chart is active, with price movement the entire trading day. There is likewise volume associated with every last one of those one-minute price bars.
After 4:00, the volume drops off emphatically. A portion of the price bars likewise show up as specks, since there was a transaction at only one price level during that one-minute period. There are gaps between the specks (and some price bars) on the grounds that the price might change even however transactions haven't occurred. This is on the grounds that there are less bids and offers, thus as the bids and offers change, that might tempt or scare somebody into transacting at the new bid or offer.
The last transaction of the evening happens at 7:55 p.m., in this model. The primary transaction, in this model, happens at 7:28 a.m the following morning. The price is trading higher than the prior close price however is immediately adjusted as the price falls more than $0.75 in minutes. The price sways some more, on low volume, before the official exchange open happens and volume raises.
Features
- Extended trading is the trading that happens on electronic marketplaces, outside of the official trading hours of the exchange.
- Lower volume in extended hours can lead to increased risk and volatility, albeit this can likewise present opportunities for the shrewd trader.
- Extended trading hours differ in light of which asset or security is being traded. Stock exchanges in the U.S. are open from 9:30 a.m. to 4:00 p.m. EST. Extended trading happens outside those hours.
