After Hours Trading: Will It Work for You?

Normal market hours are 9:30 a.m. to 4 p.m. ET. After-hours trading occurs after the markets close. Schwab clients can trade after hours from 4:05 p.m. to 8:00 p.m. ET on Schwab.com or Schwab Mobile, or round the clock on thinkorswim® by choosing an EXTO order type (see table for details).  

There is also a session prior to the market’s open which is called the pre-market session; Schwab clients can trade from 7:00 a.m. ET to 9:25 am ET on Schwab.com or Schwab Mobile, or round the clock on thinkorswim by choosing an EXTO order type. Together, both the pre-market and after-hours sessions are referred to as extended-hours trading.

Extended-hours trading is made possible by computerized order matching systems called electronic markets. An electronic market is simply a service that matches up buy and sell orders. For example, if you place an order to buy 200 shares at $45, the computer looks to see if there is an order to sell at least 200 shares at $45. If there is, the trade is done, if not, then the order will not be filled. 

While commissions and settlement times are the same as for the regular session, there are several differences between regular session trading and after-hours trading. For example, in the after-hours session, not all order types are accepted. Traders can only use limit orders to buy, sell, or short. Market, stop and stop-limit orders, and orders with special conditions such as fill-or-kill, immediate-or-cancel, or all-or-none, can’t be placed. 

After-hours orders are good only for the particular session in which they are placed and don’t carry over into any other session—unless you’re using thinkorswim trading platforms and define your timeframe as “GTC_EXT,” which means Good Til Canceled, including the Extended Hours. Be aware that using GTC_EXT might give you the opportunity to exit or enter their trade at the price you want, but for thinly traded securities, this might result in multiple executions to fill the order. (Likely not a concern if you’re trading listed securities, which don’t carry fees or commissions, but international and over-the-counter stocks may carry fees or commissions on a per-execution basis.)

There are several potential benefits for after-hours trading:

Convenience: Some traders simply can’t place trades during the normal session due to their schedules. The after-hours session allows them to check out the current quotes and potentially place a trade at a more convenient time.

Ability to react to news events: Many companies release earnings after the close of the regular session. After-hours traders can immediately place trades to manage their positions without having to wait until the next day’s open and potentially miss meaningful price swings.

While trading in the after-hours session can offer opportunities, there are unique risks to be considered.

Uncertain prices: In the regular session, the quotes you see are consolidated and represent the best available prices across all trading venues. In the after-hours market, on the other hand, you may see prices from only one venue, and these may not reflect the prices displayed in other electronic trading systems for the same security.

Lower liquidity: Because generally fewer shares trade after hours, there can be wide spreads between the bid (the highest price offered by all buyers) and the ask (the lowest price offered by all sellers). Some stocks may simply not trade after hours.

No index values: Index levels generally aren’t calculated or disseminated for public use after hours, which could pose a challenge for individual investors hoping to trade certain index-tracking products in the after market. Professional traders may have access to proprietary systems that can quickly calculate index values based on individual stock prices, which generally gives them an edge over individual traders.

Trading in the extended sessions isn’t for everybody. Those traders who understand both the potential risks and opportunities, however, could find it worthwhile.