Why Do Stocks Go Up After Hours? Understanding the Magic Behind Post-Market Moves

Have you ever checked your stocks after the market closed and thought, “Wait, how did that jump 5% at 6 PM?!” I’ve been there too, staring at my screen confused while my carefully chosen stock suddenly decides to party after hours

After-hours trading can be both exciting and frustrating for investors. One minute your portfolio looks ordinary, the next minute you’re either celebrating or panicking because of moves happening when most traders have gone home.

In this article I’ll explain why stocks sometimes make big moves after regular trading hours what drives these price changes, and whether you should jump into the after-hours trading pool or watch from the sidelines.

What Exactly Is After-Hours Trading?

Before we dive into why stocks move after hours let’s get clear on what “after hours” actually means in the trading world.

After-hours trading refers to the buying and selling of stocks outside the standard market hours of 9:30 AM to 4:00 PM Eastern Time. Specifically, after-hours trading starts right after the market closes at 4:00 PM ET and can run until around 8:00 PM ET.

This extended trading session happens through electronic communication networks (ECNs) rather than traditional exchanges. Think of ECNs as digital meeting places where buyers and sellers can match up their orders without needing the full infrastructure of the NYSE or Nasdaq.

Why Stocks Sometimes Skyrocket After Hours

1. Earnings Releases and Major Announcements

The most common reason for big after-hours stock moves is company news. Many companies strategically release their quarterly earnings reports after the market closes. This gives investors time to digest the information before making trading decisions.

For example, if a tech company announces earnings that beat analyst expectations at 4:30 PM ET, traders may immediately jump in to buy shares, pushing the price up significantly during after-hours trading.

Other major announcements that can cause after-hours price surges include:

• Merger and acquisition news
• FDA approvals for pharmaceutical companies
• Major contract wins
• Executive leadership changes
• Dividend increases

2. Low Liquidity = Higher Volatility

One of the defining characteristics of after-hours trading is dramatically lower volume. With fewer participants in the market, it takes fewer shares to move a stock price significantly.

Here’s a real-world example: In 2019, Nvidia reported its quarterly results after market close. Within just 10 minutes of the announcement, the stock jumped from $154.50 to nearly $169! During those first five minutes, around 700,000 shares traded and the stock rose nearly 6%. But by 5 PM, volume had dropped to only 100,000 shares.

The next morning when regular trading resumed, nearly 2.3 million shares traded in the first 5 minutes, and the price actually fell from $164 to $161 before closing the day at $157.20 – giving back most of those after-hours gains.

This example perfectly illustrates how after-hours price movements can sometimes be misleading due to the thin trading volume.

3. Institutional Investor Influence

After-hours trading tends to have a higher proportion of professional and institutional investors compared to regular trading hours. These sophisticated market participants:

• Have greater resources and faster access to information
• Can move more quickly on breaking news
• Often have larger positions that can influence prices
• May have different trading strategies than retail investors

When large institutional investors decide to buy after an earnings beat, their substantial orders can drive prices higher quickly in the thinner after-hours market.

4. Global Market Influence

The global economy doesn’t sleep when the US markets close. Significant events in Asian or European markets can influence US stocks during after-hours trading as investors react to international developments.

For instance, if a major economic announcement from China comes out at 9 PM Beijing time (which is 9 AM ET), it might affect US stocks trading in the after-hours session.

The Double-Edged Sword: Pros and Cons of After-Hours Trading

Advantages

1. Opportunity to React to News
The biggest advantage is being able to respond quickly to breaking news or earnings releases. If Apple announces blowout earnings, you don’t have to wait until the next morning to buy shares.

2. Convenience
Some investors simply can’t trade during normal market hours due to work or other commitments. After-hours trading provides flexibility for those who can’t participate during the day.

3. Potential Price Advantages
Sometimes you can get better execution prices if you’re early to react to news before the majority of market participants can trade the next morning.

Disadvantages

1. Low Liquidity and Wide Spreads
The most significant risk is the lack of trading volume. This leads to:

• Wider bid-ask spreads (the difference between what buyers will pay and what sellers want)
• Higher price volatility
• Greater difficulty executing trades at desired prices

2. Price Uncertainty
The prices you see during after-hours may not be the best available across all potential trading venues. Unlike during regular hours, there’s no consolidated quotation system ensuring you get the best price.

3. Tough Competition
You’re up against professional traders who have sophisticated tools, better information access, and years of experience. This creates an uneven playing field for retail investors.

4. Order Restrictions
Many brokerages limit the types of orders you can place after hours. For example, Charles Schwab doesn’t allow stop orders, stop-limit orders, fill-or-kill orders, immediate-or-cancel orders, and all-or-nothing orders during extended hours.

Real-World Case Study: The Volatile After-Hours Dance

Let’s look at what happened with Nvidia’s earnings in 2019 (mentioned earlier) to understand how after-hours trading can create a false impression:

This example shows how dramatic after-hours moves can sometimes fade once the broader market weighs in during regular trading hours.

Should You Trade After Hours?

Here’s my honest take: for most retail investors, after-hours trading is probably not worth the risks. But if you’re determined to try it, here are some guidelines:

Consider After-Hours Trading If:

• You have breaking news that will significantly impact a stock
• You’re comfortable with the higher risks involved
• You use limit orders exclusively to protect against price spikes
• You understand that your trades might not get filled
• Your broker offers reasonable commissions for after-hours trades

Avoid After-Hours Trading If:

• You’re new to investing
• You’re making emotional trading decisions
• The stock has very low volume after hours
• You’re trying to trade illiquid stocks
• You’re using market orders (these can be dangerous when liquidity is low)

How to Participate in After-Hours Trading

If you decide after-hours trading makes sense for your situation, here’s how to get started:

1. Check if your broker offers after-hours trading – Most major online brokers now provide this service, but trading hours and rules vary.

2. Understand your broker’s specific rules – Some brokers limit order sizes (often to 25,000 shares maximum), restrict order types to limit orders only, and have different fee structures.

3. Always use limit orders – Never use market orders during after-hours sessions, as you might get filled at unexpectedly high or low prices due to the wider spreads.

4. Be aware that orders typically expire at the end of the extended session – Unlike day orders during regular hours that expire at 4 PM ET, after-hours orders usually can’t carry over to the next day.

5. Monitor multiple information sources – Make sure you’re seeing accurate pricing data and have access to news that might be moving the stock.

Final Thoughts: Approach With Caution

After-hours stock moves can be exciting, especially when they’re moving up and you own the stock. But remember that these moves often happen in thin markets with professional traders dominating the landscape.

For most of us regular investors, the best strategy is probably to note the after-hours action but wait until regular market hours to make trading decisions. That way, you benefit from:

• Better liquidity
• Tighter spreads
• More market participants establishing a fair price
• Access to all order types
• More complete information

When I see a stock I own jumping 10% after hours on earnings, I get excited too. But I’ve learned through experience that sometimes by morning that gain has disappeared—and occasionally even turned into a loss.

If you do decide to trade after hours, do so with smaller position sizes and always use limit orders to protect yourself from the wild price swings that can happen when liquidity dries up.

Have you tried after-hours trading? What has your experience been? I’d love to hear your thoughts in the comments!

Stocks are up after hours primarily because of positive news released outside of regular trading hours, such as strong earnings reports or positive company announcements, which can lead investors to buy shares and drive the price up.

The “10 a.m. rule” is a stock trading strategy suggesting traders wait until around 10 a.m. to make significant decisions to let the market’s initial volatility settle. The first 30 minutes of trading are often the most volatile as the market reacts to overnight news, which can lead to exaggerated and misleading price movements.