Picture this: It's Thursday night and news breaks that a major tech company has been hit with a cybersecurity breach. Within minutes, social media is ablaze and investors are scrambling to assess the damage.
It used to be that traders would have to wait until Friday morning's opening bell to alter their positions, but now several brokerages—including Schwab—offer 24/5 trading. This allows clients to trade from 8 p.m. Eastern time (ET) on Sunday through 8 p.m. ET on Friday with just five minutes of downtime before and after the regular trading session (see "Extended-hours trading with the thinkorswim® platform").
However, it's not all upside. Traders should understand the heightened risks around 24/5 trading—and what they can do to adjust their approach.
More opportunity, more risk
There are fundamental differences to trading outside standard market hours:
- Less liquidity: With fewer traders active after hours, even popular stocks experience lower trading volumes, which can lead to wider bid/ask spreads that could amplify losses or reduce profits.
- More volatility: By the same token, having fewer trades means stocks are potentially exposed to greater and more frequent price fluctuations. This can be particularly likely during earnings season, since many earnings announcements occur after the standard trading day has ended.
- Uncertain prices: Unlike regular trading hours, during which brokers must fill orders at the best available price across all trading venues, an after-hours quote may not reflect the best available price in the market.
- Broker-imposed restrictions: Most brokers accept only limit orders for trades placed outside regular market hours, meaning your trade will execute only if the stock reaches your specified price (or better). A broker may also limit trades to just a portion of the market or cancel unfilled after-hours orders prior to the start of regular trading hours.
Learning to adjust
It's wise to go slow and use more cautious tactics when it comes to extended-hours trading, which might include:
- Taking smaller positions: Generally speaking, many traders may not see after-hours trading as the time to take big swings. Instead, traders might consider buying or selling just a portion of their overall trade at different times to reduce the risk of uncertain pricing. For example, if a test trade goes through at an advantageous price, it might make sense to open another similarly sized position in short order. However, if the initial trade doesn't go as intended, waiting until conditions improve could make more sense.
- Focusing on more-liquid stocks: Stocks that attract more investor attention may have higher trading volumes and therefore greater liquidity, which could result in narrower bid-ask spreads and a better chance of transacting at a desired price.
- Avoiding off-peak hours: Liquidity is typically highest in the hour before the market opens and the hour after it closes (the latter being when many companies report earnings). Outside these hours, traders tend to be more selective about what news warrants immediate action.
Traders using Schwab's thinkorswim trading platform can also use the active trader ladder function to help manage price.
Mind the gap
On thinkorswim desktop, the active trader ladder displays bid, ask, and volume data in real time, helping traders determine where to set their entry and exit limits.
- To view a stock's active trader ladder, log in to the thinkorswim desktop app and click ❶ Trade, then ❷ Active Trader, and then ❸ enter a ticker symbol in the search box. The stock chart will populate on the left side of the screen, and the active trader ladder will populate on the right.
- Traders can use the 🅐 Bid Size and 🅑 Ask Size columns to determine where the stock is currently trading, which can help them set their entry and exit limits. To view a wider or narrower range of prices, use the 🅒 Zoom icons.
- To place a limit order to buy the stock at a desired Price, click the relevant row in the ❹ Bid Size column. (The default order size is 100 shares. To change this number, click the arrow next to Buy Mkt to Show Buttons Area, and then adjust the ❺ Qty or select a preset.) Review the order details in the Order Confirmation Dialog pop-up, and if everything looks correct, click ❻ Send to finalize the order.
Source: thinkorswim® desktop platform for Mac.
Source: thinkorswim® desktop platform for Mac.
Know your comfort zone
Trading virtually around the clock isn't right for everyone. Traders should try to understand their own strengths and lean into them—rather than forcing a strategy that might not align with their skills and goals.
Extended-hours trading with the thinkorswim® platform
With 24/5 trading (8 p.m. Eastern time on Sunday through 8 p.m. Eastern time on Friday, with five minutes of downtime before and after the regular trading session), you have access to more than 800 of the most popular stocks and ETFs, including all stocks in the Dow Jones Industrial Average, Nasdaq 100, and S&P 500® indexes. And Schwab trading specialists are up when you are, so you can get high-quality support via phone or chat—even when the exchanges are closed. Learn more about 24/5 trading.
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The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.
Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.
Investing involves risk, including loss of principal.
Extended Hours Trading may not be suitable for all investors and poses certain risks. These risks include, but are not limited to, lower liquidity, higher volatility, extended hours pricing not reflective or different than pricing during regular trading hours, impact to price display and execution quality from unlinked markets, news announcements, and wider spreads. To learn more call 1-800-435-4000.
Due to limited liquidity in Extended Hours Trading sessions, there are no assurances that an investor's stock order will be executed.
Extended Hours Trading will not take place on official Exchange holidays or when Exchanges close early. Schwab reserves the right to change or modify hours of operation for Extended Hours Trading at any time. A Schwab Extended Hours Trading session, or any security traded therein, may be temporarily or permanently suspended at our discretion.