Did you know that you can trade outside of regular market hours? With extended-hours trading, you can trade before markets open and after they close. If youre someone with a busy schedule, pre-market and after-hours trading may work for you.
Ever found yourself wonderin if you can buy stocks when the market’s officially closed? Maybe you’re busy during regular trading hours, or perhaps you’ve spotted a juicy investment opportunity at night. The good news is – yes, you can buy stock after hours! But there’s some important stuff you should know before diving in
What Is After-Hours Trading?
After-hours trading refers to buying and selling stocks outside regular market hours. While the major North American stock exchanges like the Toronto Stock Exchange (TSX), New York Stock Exchange (NYSE), and Nasdaq typically operate between 9:30 a.m. and 4 p.m. ET on weekdays, extended hours trading allows investors to place trades beyond these times.
Extended hours trading consists of two sessions:
- Pre-market trading: Usually between 8 a.m. and 9:20 a.m. ET (U.S. markets only)
- After-hours trading: Typically from 4 p.m. to as late as 8 p.m. ET (U.S. markets only)
For the TSX specifically, post-trading runs from 4:15 p.m. to 5 p.m. ET.
How After-Hours Trading Works
After-hours trading works differently than regular market hours, Here’s what you need to know
Limited Order Types
During extended hours, you’re generally limited to placing only limit orders (not market orders). This means you specify the maximum price you’re willing to pay or the minimum price you’re willing to accept.
Different Rules
Trading rules can vary depending on your location and brokerage. Some brokerages might restrict trading to certain time periods or specific securities.
Electronic Networks
Extended hours trading takes place on electronic communication networks (ECNs) rather than on the main exchanges, which allows traders to match buy and sell orders directly.
Why Would You Want to Trade After Hours?
There are several reasons why investors might choose to trade outside regular market hours:
Reacting to News
Companies often release important news like earnings reports after the market closes After-hours trading lets you respond quickly to this information before the market opens the next day
Accommodating Busy Schedules
If you’re working during regular market hours, extended trading provides flexibility to manage your investments when it’s convenient for you.
Responding to Overseas Markets
International events or movements in foreign markets can create opportunities that you might want to capitalize on before regular trading begins.
Earnings Announcements
Since many companies release earnings after market close, after-hours trading lets you react immediately to these reports rather than waiting for the next trading day.
The Risks of After-Hours Trading
Before you jump into after-hours trading, it’s important to understand the significant risks:
Lower Liquidity
There are far fewer participants in extended hours trading, which means there may not be enough buyers or sellers to execute your trades. This lower liquidity can lead to:
- Partial execution of orders
- Orders not being filled at all
- Difficulty finding buyers or sellers for your desired security
Higher Volatility
With fewer participants, stock prices can swing dramatically during extended hours. A single large order can cause significant price movements, and stocks might move in one direction after hours only to reverse course when regular trading resumes.
Wider Spreads
The bid-ask spread (the difference between what buyers are willing to pay and what sellers are asking) tends to be wider during extended hours. This can result in less favorable prices compared to regular trading hours.
Limited Availability
Not all stocks are available for trading during extended hours, and some brokerages restrict which securities can be traded outside normal hours.
How to Trade Stocks After Hours
If you wanna trade after hours, here’s what you’ll need to do:
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Check if your broker offers extended hours trading – Most major online brokerages now provide this service, but trading hours and rules vary.
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Log into your brokerage account – Access your trading platform during extended hours.
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Select your stock – Make sure the security you want to trade is available during extended hours.
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Place a limit order – Remember, market orders typically aren’t available during extended hours.
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Be prepared for volatility – Set your limit price carefully, considering the wider spreads and potential for price swings.
TD Direct Investing and After-Hours Trading
If you have a TD Direct Investing account, you can place pre-market or after-hours orders online using WebBroker or Advanced Dashboard for eligible securities. TD provides detailed market data for extended hours trading free of charge to account holders.
Examples of After-Hours Trading Scenarios
Scenario 1: Earnings Surprise
Imagine a company releases unexpectedly positive earnings after the market closes at 4:30 p.m. By trading after hours, you could potentially buy shares before the price jumps when the market opens the next morning.
Scenario 2: Overseas Market Impact
If a company with significant business in Asia experiences price fluctuations due to events in Asian markets overnight, you might want to react before regular trading begins.
Scenario 3: Breaking News
When major news breaks after regular hours that might impact a stock’s value, after-hours trading lets you respond immediately rather than waiting.
Strategies for Safer After-Hours Trading
If you decide to trade after hours, consider these strategies to minimize risks:
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Use limit orders exclusively – This helps protect you from extreme price movements.
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Start with small positions – Lower your risk exposure until you’re comfortable with extended hours dynamics.
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Be selective – Focus on highly liquid stocks that are more likely to have adequate trading volume after hours.
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Check for news first – Understand why a stock might be moving after hours before placing trades.
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Have a clear strategy – Don’t trade after hours just for the sake of it; have specific reasons and plans.
Frequently Asked Questions About After-Hours Trading
What time does after-hours trading end?
For U.S. markets, after-hours trading typically ends at 8 p.m. ET, though some brokerages may have different cutoff times. For the TSX, post-trading ends at 5 p.m. ET.
Can I place any type of order during extended hours?
No, generally only limit orders are accepted during extended hours trading. Market orders are typically not available.
Are all stocks available for after-hours trading?
No, not all securities can be traded after hours. Availability varies by brokerage and exchange.
Is after-hours trading suitable for beginners?
Due to the increased risks and volatility, after-hours trading is generally more appropriate for experienced investors who understand the potential pitfalls.
How can I check a stock’s after-hours price?
If you have a brokerage account, you can use their platforms to view extended hours data. There are also financial websites that provide free access to after-hours data.
Should You Trade After Hours?
Whether you should trade after hours depends on your experience level, investment strategy, and risk tolerance. After-hours trading offers opportunities but comes with significant drawbacks that can make it riskier than regular trading.
For most investors, especially those without a well-defined strategy or specific reason to trade after hours, it might be best to stick with regular market hours when liquidity is higher and spreads are tighter.
Bottom Line
Yes, you can buy stock after hours through most online brokerages, but it’s not as straightforward as trading during regular market hours. The lower liquidity, higher volatility, wider spreads, and limited availability of securities make it a riskier endeavor.
If you do choose to trade after hours, make sure you understand the risks involved and have a clear strategy in place. For many investors, especially those with a long-term focus, waiting for regular market hours might be the wiser choice.
Remember, just because you can trade after hours doesn’t always mean you should. As with any investment decision, it’s important to weigh the potential benefits against the risks before proceeding.
I’ve used after-hours trading a few times when companies released unexpected news, but I generally prefer regular market hours for most of my trades. The liquidity is just so much better, and I feel more confident about the prices I’m getting.
Risks associated with pre-market and after-hours trading
Liquidity: If there are a large number of orders in the market, the liquidity of a security is considered to be high. However, with very low levels of liquidity during pre-market and after-market hours, there is no guarantee that a certain trade will be executed. The risk is that your order may be partially executed or not executed at all.
Volatility: Change in the price of a security during trading hours is known as volatility. Due to a smaller number of participants in extended hours, trading can be volatile and result in price swings.
The spread: This refers to the measurable difference in price between what a security can be bought and sold for. With lower liquidity and higher volatility, the spread may be wider during pre-market and post-market hours.
Availability: During pre-market and after-hours trading not all stocks are available to trade. Plus, only limit orders are available to investors during these extended hours.
Certain institutional and major investors may choose to simply refrain from pre-market and after-market trading, regardless of market shifts or events. Due to this, its possible for a stocks price to fall sharply during extended hours trading only to rise when the markets open the following day.
What are the pre-market trading hours?
Any trading activity that occurs before markets open is known as pre-market. While the TSX does not offer pre-market trading, the NYSE and NASDAQ do. It usually takes place between 8 a.m. and 9:30 a.m. ET on weekdays, but many discount brokers facilitate access to NYSE and NASDAQ pre-market trading as early as 4 a.m. ET.