Market orders refer to the time a trade is placed when the market is open and the stock market is functioning. Extended hours are the periods before and after the market hours during which investors can trade without involving the exchange.¹
How does trading after market hours take place?
The timings can be classified into three sessions²:
a. Opening Session: 4:00 AM - 9:30 AM ET
b. Trading Hours: 9:30 AM - 4:00 PM ET
c. Extended Session: 4:00 PM - 8:00 PM ET
The opening session and extended session consist of the after-market hours. Generally, institutional investors participate in trading during these hours. The liquidity of securities is not as high as during trading hours, and the price can be very volatile during these two sessions. Buying and selling happen over Electronic Communication Networks, and the trading mechanism is similar to that during regular trading hours. The price quoted is done voluntarily by authorized members only. If the orders are not executed during these sessions, they get canceled and are not carried over to the trading sessions in the exchange.¹
Example
Company X announced its quarterly results at 6 PM. Mark, who owns 1000 shares of the company, is worried that the price will fall since the results didn’t meet the expected figures. In such a scenario, Mark may decide to place a trade after the market hours to help mitigate potential losses once the exchanges open. While there’s no guarantee that Mark would be able to offload his stake, there may be buyers during the opening and extended session if the stock is liquid enough.
References
1 “How After-Hours Trading Affects Stock Prices.” Investopedia. https://www.investopedia.com/ask/answers/05/saleafterhours.asp
2 “Market Information.” NYSE. https://www.nyse.com/markets/nyse-arca/market-info
Please note that this article is for educational and informational purposes only.
There are certain risks associated with extended hours trading. Please visit our disclosure to be informed on those details before entering into a full extended session.
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