What Is After Hours Stock Trading?What goes on during the 'closed hours' on a stock market? How much after hours stock trading is really done and can you do it too? The opening hours of every stock exchange are fixed and have been set as they are for years (for some markets, decades). In days gone by, the stock broker took the role of making a market for retail investors to trade in. They still do this, but more and more buying and selling happens electronically with less involvement of brokers. As more trading occurs electronically, the idea of a market with a fixed location has become outdated. This has been pushed forward by the 'high frequency traders' that use algorithms to make their trades and provide liquidity. Additionally, the large financial institutions (investment banks, hedge fund etc) have become increasingly global in their locations and international in their staffing policies. This means that there are traders with funds looking for deals 24 hours per day.
Even such massive changes as global electronic transactions and extended hours have their limits. The trading day begins a little earlier than it used to. The reality is that the majority of investment bankers and hedge fund managers are having a daily meeting to establish priorities and trades for the coming day and there are limits to just how early people can get in to work, no matter how committed they may be. Since many already arrive before 8am, the number of early trades is limited. This is one reason why financial news channels and journalists talk about 'indications' in their morning shows. However, it is a different story after the market has closed. After hours stock trading is much more common, partly because all traders are at their desks as the market closes, and partly because some savvy companies choose to release statements and news to the markets just before closing to limit any problems that the news may cause. For private investors, this works, but not so much for the fund managers and traders.
It is worth pointing out that although the amounts being traded are large, the reality is that most markets are much less liquid after closing. This means that there is less competition to quote prices and as such, the prices may be less competitive. In other words, the potential upside of deals after the closing bell can be limited due to the more technical factors of availability and price. To read more about related topics, please follow these links:
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