Some of us can’t get enough of trading. Thankfully, the good people at the NYSE and Nasdaq have extended trading hours from 4:00 PM to 8:00 PM ET. But how does after-hours trading work?

If you want to do some after-hours trading, there are some things you need to know. You see, after-hours trading is a whole different animal. Here’s what you should know:

After-Hours Trading vs. Regular-Market Hours Trading

It’s important to know what you’re getting into before jumping into after-hours trading. After-hours trading is another valuable tool you can use to increase your profits. But, like any tool, it’s important to know how to properly use it to your advantage. Here are some of the key differences to note while you’re trading stock after hours:

  • Order types. In the after-hours, market orders do not work. That said, you must use limit orders to execute your trades. With a limit order, you set the price at which you are willing to buy or sell a stock, but there is no assurance that your order will get filled.
  • There is less transparency in after-hours trading. You trade through electronic communication networks (ECNs) and dark pools. You’ll see more hidden orders and other advanced execution strategies in the after-hours.
  • Fewer traders and fewer shares trade in the after-hours. On an average day, the SPDR S&P 500 ETF (SPY) will trade 115 million shares during the regular session. That’s typically more volume than the thousands of stocks and ETFs that get traded in the post-market.
  • When markets are thinner, they’re more volatile. In the after-hours, ECNs volunteer. They are not required to offer liquidity or the best prices to you.
  • Automatic orders may not work. Order types like stop-losses will not get triggered in the after-hours.
  • After-hours trading benefits the fast-trader. Since you can’t place market orders, traders who are fast with their keys have an advantage over slower traders.
  • There is no options market in the after-hours. If options trading is a big part of your investment style, you may want to adjust your plan so you can work during the after-hours market.

What Else You Can Expect With After-Hours Trading

Another aspect of trading on the stock market after hours is that many companies like to release news before and after the market closes, which gives investors extra time to digest information. For example, quarterly earnings results are published during pre- and post-markets.

However, that’s not the only news that gets released. Analyst upgrades and downgrades are sometimes released in the after-hours, as well as other company-specific news like secondary offerings.

But it’s not just companies releasing information. Sometimes hedge funds and other large financial institutions will announce stakes in companies through a 13F filing. A 13F filing is a quarterly report by institutional investment managers to the SEC which contains all equity assets under management of at least $100 million in value.

Why You Might Want to Trade After-Hours

Trading during the after-hours can be very lucrative given all the catalysts there are. For example, if a company releases positive news at 6 p.m., most traders will not be around till the next morning to take action. A savvy news trader can take advantage of the extra time they’ll find to make after-hours trading.

For example, on February 8, 2019, SPI Energy released a statement that it will continue to be allowed to be a listed stock on the Nasdaq — a positive catalyst. To be listed on either the Nasdaq or NYSE, a company must meet specific financial, reporting, and regulatory standards.

SPI Energy being allowed to stay part of the Nasdaq convinced traders to buy the stock, and it traded up by 11% in the after-hours. That said, the following Monday, shares were trading even higher.

As you can see, it paid to make a move in the after-hours, instead of waiting for Monday morning. This is a prime example of how traders take advantage of news in the after-hours. That said, finding stocks that are gapping higher in the after-hours could sometimes be a signal that the stock can be a big mover when the market officially re-opens the next day.

Option Traders Can Benefit from After-Hours Trading

Imagine you buy call options ahead of an earnings stock, and after the closing time, it announces blockbuster numbers and the stock gaps up by 20%. However, the options market is closed, and there is still plenty of uncertainty on whether the gains will hold. After all, the company has to do a conference call, and the analysts must make updates to their recommendations. That said, you should short stock against your long call option.

For example, let’s say you buy stock XYZ at $50 calls for $5, and during the after-hours, the stock jumps to $60. You are $5 profitable. But, if you sell stock at $60, then you will have locked in your gains. By selling stock against your long calls, it transforms your position into a long synthetic put. In other words, you can potentially make money now if the stock suddenly collapses.

Final Summary

After-hours trading is generally reserved for the professional trader. The market is thinner, and it favors fast traders. Options traders can use the after-hours trading to lock in gains or hedge using equities. Besides, you can sometimes use the after-hours market as a guide on which stocks will be in play when the session officially opens up. That said, if you’d like to brush up on your options, make sure to get your copy of this free eBook today. Do your research and develop your best style and plan to take advantage of after-hours trading. While trading stock after-hours may not be valuable to every trader, you can use it to boost your profits as long as you do your homework first.


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