When investing, your capital is at risk and you may get back less than invested. Past performance doesn’t guarantee future results.
Pre-market and after-hours trading
Have you ever wondered how to capture those big moves in the stock market that happen before and after regular trading hours?
Earnings and big announcements often happen when the market is closed so trading pre-market or after-hours offers new potential opportunities.
Earnings and big announcements often happen when the market is closed so trading pre-market or after-hours offers new potential opportunities.
Big ideas
- Pre-market and after-hours trading can be valuable for investors, offering opportunities to react to breaking news and manage portfolios beyond regular trading hours.
- Stocks can experience significant price moves during these extended hours. However, trading comes with increased risks from lower liquidity and heightened price volatility.
- Many international stock exchanges offer the ability to invest before and after the market opens, allowing investors worldwide to invest outside their local trading hours.
What is pre-market trading?
Pre-market trading is the extended trading session that occurs the morning before the open of regular trading hours in the stock market.
Pre-market trading takes place before the official opening of the stock market. The best-known and most active pre-market session is before the New York Stock Exchange opens, typically starting as early as 4:00 AM and lasting until the market opens at 9:30 AM Eastern Time.
What is after-hours trading?
After-hours trading is the extended trading session that occurs the evening after the close of regular trading hours in the stock market.
After-hours trading takes place after the official close of the stock market. This would start at 4:00 PM and last until around 8:00 PM, when most scheduled announcements would have occurred.
Want to understand more about [extended hours trading (EHT)? Learn more in our full explainer.
Want to understand more about [extended hours trading (EHT)? Learn more in our full explainer.
Note: Liquidity can be lower, resulting in wider bid-ask spreads and potentially increased price volatility. Additionally, not all stocks are available for pre-market and after-hours trading, and certain securities may have limited trading activity during this period.
The uses of pre-market and after-hours trading
Pre-market and after-hours trading can serve several useful purposes that give you some extra choices for taking investment opportunities and managing risks.
Reacting to earnings reports and news events
Pre-market and after-hours trading allows investors to respond quickly to earnings reports, economic data releases, or significant news events outside regular trading hours.
Mitigating overnight risks
Events or news occurring after the market closes can lead to overnight gaps in stock prices. Participating in after-hours trading can help investors exit positions quicker, hedge or take advantage of these overnight price movements.
Flexibility
If you practically can’t trade during regular market hours due to work or other commitments, pre-market and after-hours trading offer flexibility and a new time from which to do your investing.
Reduced competition
Fewer market participants trade during extended hours compared to regular trading hours. This can reduce competition and potentially improve execution prices for certain trades.
Comparison of pre-market and after-hours trading with regular trading hours
Pre-market and after-hours trading differ from regular trading hours in several ways:
Factors | Pre-market & after-hours | Regular trading hours |
Trading Hours | Pre-market: 4:00 AM - 9:30 AM ET After-hours: 4:00 PM - 8:00 PM ET | 9:30 АМ - 4:00 PM ET |
Liquidity and Volume | Lower trading volumes Wider bid-ask spreads Increased price volatility | Higher trading volumes Narrower bid-ask spreads Reduced price volatility |
Availability of Stocks | The most commonly traded stocks and ETFs | Broad selection of tradable stocks |
Price Movements | More pronounced due to lower volume Greater price volatility | Less pronounced due to higher volume Lower price volatility |
News and Earnings Releases | Crucial for reacting to overnight news | Limited reaction time for overnight news |
Access to Global Markets | Offers access during overlaps in international markets | Access limited to specific market hours |
Market Orders | May result in significant price deviations | Executed at prevailing market price |
Regulatory Constraints | Variations in rules and restrictions Restrictions on specific order types and short selling | Standard regulatory rules apply |
Note: The specific hours, liquidity, and regulations can vary between different stock exchanges and securities, so you should always confirm the details specific to your market and securities of interest.
Examples of the effect of pre-market and after-hours on stock prices
Most likely, you’ve noticed that a stock will often open at a completely different price to when it closed. This is known as the opening gap, and it happens because market markers and investors will re-price what a stock should be trading for based on new information that became available since the market closed.
Example 1: Stock gaps up
A technology company, TechnoGaps, releases its quarterly earnings report during after-hours trading, revealing that it has significantly exceeded analysts’ expectations. The report shows higher-than-expected revenue and profit margins, attributed to the successful launch of a new product.
Source: TradingView. Past performance doesn't guarantee future results.Example 2: Stock gaps down
Imagine a fictional pharmaceutical company, Meditrader, announces unexpectedly during pre-market hours that its CEO has resigned with immediate effect due to personal reasons. The CEO was instrumental in the company's recent successes and is highly regarded in the industry.
Source: TradingView. Past performance doesn't guarantee future results.This sudden announcement instigates uncertainty and concern among investors about the company’s future leadership and strategic direction. The stock starts to experience a sell-off during the pre-market trading hours as investors anticipate potential instability. As the regular market opens, Meditrader’s stock price opens significantly lower than the previous closing price, indicating a gap down.
In both scenarios, events occurring during the extended hours trading lead to rapid and significant reactions in the stock’s price. These examples underscore the importance for investors and traders to monitor news and events closely during pre-market and after-hours trading to anticipate potential gapping up or down and devise their trading strategies accordingly.
In both scenarios, events occurring during the extended hours trading lead to rapid and significant reactions in the stock’s price. These examples underscore the importance for investors and traders to monitor news and events closely during pre-market and after-hours trading to anticipate potential gapping up or down and devise their trading strategies accordingly.
Strategies for evaluating and selecting the right stocks for pre-market and after-hours trading
Navigating the pre-market and after-hours trading sessions can be complex and requires a well-structured strategy.
There is no one-size-fits-all approach, but usually, the reason to trade outside of regular market hours is to react to something happening then. With that in mind, here are some actionable steps to evaluate and select promising stocks for pre-market and after-hours trading.
There is no one-size-fits-all approach, but usually, the reason to trade outside of regular market hours is to react to something happening then. With that in mind, here are some actionable steps to evaluate and select promising stocks for pre-market and after-hours trading.
Step 1: Conduct event-driven analysis
- Utilise reliable financial news sources, analysts' reports, and companies’ official websites to stay updated with upcoming earnings releases.
- Analyse previous earnings reports to understand potential impacts on stock prices and identify trends or patterns.
- Subscribe to economic calendars or financial news alerts to get real-time updates on scheduled announcements by central banks and other significant global events.
- Study the historical impacts of such events on stock prices to anticipate potential market reactions.
Step 2: Assess liquidity
- Use trading platforms or financial analytics tools to review the trading volumes of targeted stocks during extended hours.
- Identify stocks with higher trading volumes to ensure liquidity and more manageable bid-ask spreads.
- Check with your broker or use trading platforms to confirm the availability of your targeted stocks for extended hours trading.
- Focus on stocks that are frequently traded during these hours to ensure liquidity and accessibility.
Step 3: Evaluate volatility
- Review historical data and trends of your targeted stocks to understand their price fluctuations and behaviour during extended hours.
- Utilise technical analysis tools to identify patterns, support, and resistance levels to inform your trading decisions.
- Use options pricing models and indicators to estimate expected future volatility and potential price movements.
- Consider stocks with higher implied volatility for significant trading opportunities while being mindful of the associated risks.
Additional tips
- Always set stop losses and have a clear exit strategy to manage your risks effectively during the volatile pre-market and after-hours trading sessions.
- Diversify your trades to spread the risks and avoid putting all your capital into a single stock or sector.
- Join trading communities, forums, or social media groups to exchange insights and experiences and stay updated with real-time market developments.
The current state of pre-market and after-hours trading
Pre-market and after-hours trading has become increasingly popular in recent years as more and more investors are looking to take advantage of the extended trading hours. In fact, pre-market and after-hours trading now accounts for a significant portion of overall trading volume.
The fact that many annual gains in indices like the S&P 500 happen outside regular trading hours shows the potential opportunities these sessions harbour.
Market-moving news, including earnings releases, economic indicators announcements, and geopolitical events often transpire outside regular trading hours. Traders and investors capitalise on these events, contributing to pronounced price movements and trading volumes.
This phenomenon is not just in the United States too, it occurs in most developed markets.
As global markets become more interconnected, and technology continues to advance, it’s anticipated that these trading sessions will witness enhanced liquidity, reduced spreads, and increased participation from both retail and institutional investors. Traders will likely have more sophisticated tools to analyse, execute, and manage trades efficiently.
The fact that many annual gains in indices like the S&P 500 happen outside regular trading hours shows the potential opportunities these sessions harbour.
Market-moving news, including earnings releases, economic indicators announcements, and geopolitical events often transpire outside regular trading hours. Traders and investors capitalise on these events, contributing to pronounced price movements and trading volumes.
This phenomenon is not just in the United States too, it occurs in most developed markets.
As global markets become more interconnected, and technology continues to advance, it’s anticipated that these trading sessions will witness enhanced liquidity, reduced spreads, and increased participation from both retail and institutional investors. Traders will likely have more sophisticated tools to analyse, execute, and manage trades efficiently.
Features of pre-market and after-hours trading with Trading 212
When pre-market and after-hours trading, there are several features to consider to ensure a smooth and successful trading experience:
- Availability of securities
All US stocks listed on the NYSE and NASDAQ are available for extended market hours (EMH) trading. - Order types
All the same order types available during regular market hours are available pre-market and after-hours, including market orders, limit orders, stop orders. - Liquidity
Data on trading volumes is less reliable after hours, making it harder to gauge the level of liquidity for the securities you want to trade. In general, liquidity is much lower outside of regular market hours. - Costs and fees
You can take advantage of commission-free trading, whether you are trading during the day or before or after the regular session. However, spreads are usually wider pre-market and after-hours, meaning a bigger gap between the price you can buy and sell at.
Other fees may apply. A 0.15% FX fee applies when converting funds. - Customer support
The customer support is here to help 24/7 in case you need assistance during extended hours trading. - Demo account
You can simply switch to ‘practice mode’ to try out pre-market and after-hours trading with virtual money before switching back to ‘real money’. This can be helpful for familiarising yourself with the nuances of trading at a different time of day. - Mobile Access
If you prefer trading on the go, you can access after-hours and pre-market trading with a mobile app on smartphones and tablets
How to trade in pre-market: Recommendations and tips
To start investing in regular and extended market hours withTrading 212, you will need to create an account. Once your account is created, you can deposit funds and start trading. To trade, simply select the stock or ETF that you want to trade and enter the amount that you want to buy or sell. You can also set a limit order or stop-loss order.
Here are some extra tips to try once you get started in your Trading 212 account:
Here are some extra tips to try once you get started in your Trading 212 account:
- Use limit orders. This will help you to control the price at which you buy or sell a security.
- Be aware of the risks. Pre-market and after-hours trading can be more volatile than regular trading hours.
- Consider the liquidity of the securities you are trading. Some securities may be more liquid during regular trading hours than during extended trading hours.
- Consider the volatility of the securities you are trading. Some securities may be more volatile during extended trading hours than during regular trading hours.
- Consider your risk tolerance. Some trading systems are more risky than others.
Recap
Pre-market trading allows investors to react to news and events that occur outside of regular market hours. For example, if a company releases its earnings report after the regular market close, investors can still trade the stock in the pre-market session.
However, there are some key differences between extended hours and regular market sessions which should be kept in mind to evaluate the best investing strategy.
However, there are some key differences between extended hours and regular market sessions which should be kept in mind to evaluate the best investing strategy.
FAQ
Q: What are the benefits of pre-market and after-hours trading?
It lets you stay informed and respond to news and events outside regular trading hours, such as earnings releases, breaking news, or international market activity. It also provides greater flexibility in aligning investing with your schedule.
Q: What are the risks of pre-market and after-hours trading?
There is less liquidity and more volatility than the regular trading session, which can lead to sudden price changes, more significant differences between the buy and sell prices, and slower order execution.
Q: Which stocks are available for extended hours of trading?
All US stocks listed on the NYSE and NASDAQ are available for EMH trading.
Q: Can I trade fractional shares after-hours and pre-market with Trading 212?
Yes, fractional trading is supported during extended market hours.
- Volatility: A measure of how much the price of an asset fluctuates over time.
- Technical Analysis: A trading methodology that uses historical price data, chart patterns, and indicators (such as moving averages and stochastic oscillators) to predict future price movements.
- Bid-Ask Spreads: The difference between the price buyers are willing to pay (bid) and the price sellers are asking for (ask). Narrow spreads indicate high market efficiency, while wider spreads suggest lower liquidity.
- Market Order: An instruction to buy or sell immediately at the best current price on the market. While execution is swift, the final trade price can vary, especially in more volatile conditions.
- Limit Order: A trade order to buy or sell a security at a specific price or better. A buy limit order ensures the purchase happens at or below the set price, while a sell limit order ensures the sale happens at or above the set price. It provides price control but may not be executed if the market does not reach the specified price.
- Stop Order: An order to buy or sell a security once it reaches a predetermined price, known as the stop price. A stop-loss order helps limit potential losses by triggering a market order when the price moves unfavourably, while a stop-limit order combines a stop order with a limit order for more control over the execution price.
