The Effects of Extended Hours in Day Trading

Most trading in the United States happens when the main exchanges in the New York Stock Exchange (NYSE) and Nasdaq are open. The main sessions are known for relatively high volume and major market swings.

In recent years, however, the concept of extended hours has become relatively popular among day traders.

What are extended hours?

Extended hours refers to periods when the main exchanges are closed. In the United States, the main session usually starts at 09:30 am and ends at 16:00 ET.

There are two types of extended hours. First, there is the afterhours session, which happens shortly after the markets have been closed. While the period ranges from broker to broker, it usually starts from 16:00 ET and ends at 08:00 ET.

Second, there is the pre-market session that starts between 07:30 ET to 09:25 ET. This is a trading session that comes shortly before the main market opens. (Robinhood offers premarket orders between 09:00 to 09:30 ET and after-hours until 6PM).

Since the main market are usually closed during this period, most brokers use an Electronic Communications Network (ECN) or an Electronic Stock Exchange.

Why extended hours matters

While the standard market session is the most important, extended hours are usually equally important. In fact, they tend to set the tone for what will happen when the main market is open.

There are several reasons why this happens. First, many companies tend to make most announcements when the market is closed. They do this to give investors and other market participants time to process this information.

Some of the most important news that come during this period are:

  • Earnings - In most cases, companies publish their earnings before or after the market closes.
  • Mergers and acquisitions (M&A) - Since M&A deals lead to high volatility for the affected stocks. Therefore, companies tend to release the news during this period.
  • Analyst calls - Most analysts usually deliver their calls before the market opens.
  • Management changes - Companies announce major executive changes after the market closes or before they open.
  • Investigations - In most periods when there are investigations, companies tend to reveal them in extended hours.

Differences between standard and extended hours

There are several key differences between trading in standard and do this outside of market opening hours . Some of these are:

Types of orders filled

In regular hours trading, you can implement all types of orders. You can place a market order that ensures that your orders are filled at the market price. You can also fill limit orders like buy and sell limit and buy and sell stops. These orders are only implemented when the price of a stock reaches the predetermined level.

In extended hours, many brokers usually accept limit orders. For example, Schwab only accepts limit orders during this period. Robinhood, on the other hand, accepts all types of orders. However, these orders are usually implemented when the market opens.

Number of available stocks

Most brokers provide thousands of stocks and exchange-traded funds (ETFs) to their traders and investors. All these assets are available during the regular market session.

However, some companies usually limit the number of assets that can be traded during the aftermarket session. For example, Schwab only offers companies listed in the New York Stock Exchange (NYSE) and Nasdaq.

Order sizes

You can buy as many shares as you want in the standard session. However, many online brokers put a limit on the number of shares that you can buy during extended hours. With Schwab, you can only buy 25,00o shares in a single order.

More liquidity

Finally, liquidity is an important aspect in the financial market. It simply refers to the amount of money that is flowing inside and out of the market.

In the regular session, there is usually unmatched liquidity in the market because of the number of investors participating. This can help ensure that your order will get filled faster. However, since many large investors stay away from the market in extended hours, there is usually the challenge of liquidity.

However, there are more technical differences.

Technical Differencies

For example, in the regular channel, trading occurs in exchanges like the NYSE and Nasdaq through market makers. In extended hours, it happens through the ECN market.

Also, in the regular session, there are different time limits available, including Day, GTC, IOC, and FOK, In extended hours, orders are usually good for all seasons.

Risks of extended hours trading

While extended hours offers excellent opportunities to traders, it also has some risks. Some of the most popular ones are:

  • Orders being filled - Unlike in the regular session, there is usually no guarantee that an order will be filled in extended hours. This is because of the lack of liquidity in some names.
  • Fees - Some brokers charge higher commissions or fees for trading during these periods.
  • Not the best prices - At times, trading outside of market opening hours ensures that you don’t get the right price. That’s because you are using the ECN model.

Tips for using extended hours

We recommend that you be careful when trading in the extended hours. Instead, you should use the data in the session to prepare for the regular session.

For example, you can study the actions in the premarket and set limit orders that will be implemented when the market opens. Also, you can subscribe to our morning watchlist that looks at the top performers in extended hours.

Final thoughts

Extended hours are a victory for many market participants who have long-argued that the regular session is usually not enough. For years, many traders have made the case for trading overnight and even during the weekend.

However, as we have seen above, there are still key risks of trading in these periods.

External Useful Resources

Leave a comment



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Jerry Williamson

6 months ago

Super helpful article! Thanks for such great information. A very informative article. I enjoyed reading.

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DTTW™ Daniele

6 months ago

Thank you very much Jerry. Happy trading!

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