After-Hours Trading: How It Works, Pros & Cons, Example

After-Hours Trading: What It Is and How It Works

By Adam Levy – Updated Dec 17, 2024 at 1:51 PM

Key Points

After-hours trading extends from 4 p.m. to 8 p.m. ET, allowing stock trades beyond usual hours.
Only limit orders are used in after-hours trading, posing unique pricing and liquidity risks.
Technology now enables most investors to participate in after-hours trading, reacting quickly to news.

What is after-hours trading?

After-hours trading takes place after the trading day for a stock exchange. It allows you to buy or sell stocks outside of normal trading hours. Typical after-hours trading hours in the U.S. are between 4 p.m. and 8 p.m. Eastern Time.

An infographic showing after hours stock market trading hours, which occur from 4 P.M. to 8 P.M. — Image source: The Motley Fool.

Trading outside of normal hours used to be limited to institutional investors and high-net-worth individuals. Today, technology has made it possible for the average investor to place orders for after-hours execution.

High Net-Worth Individual (HNWI)

People who have amassed investable (or liquid) assets of $1 million or more.

After-hours trading allows investors to react to company earnings releases and other news that typically takes place before or after normal trading hours. Prices can swing wildly on an earnings release or news that a CEO is stepping down. If you want to buy or sell as soon as possible based on the news, you'll need to place an order for after-hours trading.

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Risks of after-hours trading

After-hours trading comes with several risks not associated with trading on an exchange during regular trading sessions.

Pricing risk: There are multiple ECNs used by different financial institutions to execute after-hours trades, but you'll only get access to one of them through your broker. During a normal trading session, you'll get the best available price from multiple venues. But after-hours sessions limit your price discovery to just one network.
Liquidity risk: Not only are you limited to the ECN your broker uses, there are fewer market participants in after-hours sessions. As a result, there's limited liquidity for most stocks. That creates wider bid-ask spreads and an increased risk that your order won't get executed.
Volatility: When everyone's trying to react to a news item all at once, a stock will trade wildly in the after-hours session. The market will work to digest the news and discover a new price for the security. That can make it difficult for an average investor to judge whether their limit order will have a good chance of execution. Also, you may be able to get a better price in the regular trading session the next day.

The bottom line is that after-hours trading is possible and can help you react to earnings reports and other news that takes place outside of normal market hours. However, each brokerage is a little different, so be sure to do your homework before getting started.

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About the Author

Adam Levy is a contributing Motley Fool stock market analyst covering technology, consumer, and financial stocks and how policy, economic, and consumer trends shape personal finance, Social Security and retirement savings. Before The Motley Fool, Adam was a financial advisor at Edward Jones. He studied finance and electrical engineering at Carnegie Mellon University.

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Adam Levy has positions in Apple. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.