How Do Stocks Go Up After Hours? Understanding the Mystery of Post-Market Movements

Have you ever checked your portfolio after the market closed and noticed that one of your stocks suddenly jumped 5%? I remember the first time this happened to me – I was completely confused! How could my stock be moving when the market was closed? This phenomenon, known as after-hours trading, is something every investor should understand

After-hours trading can create significant opportunities (and risks) for traders who know how to navigate this unique market environment. In this comprehensive guide, I’ll explain everything you need to know about how and why stocks move after regular trading hours.

What Exactly Is After-Hours Trading?

After-hours trading refers to the buying and selling of stocks outside of regular market hours. While the major U.S. stock exchanges like the NYSE and Nasdaq operate from 9:30 a.m. to 4:00 p.m. Eastern Time (ET), after-hours trading kicks off right at 4:00 p.m. ET and can continue until around 8:00 p.m. ET.

Unlike regular trading hours where transactions occur on major exchanges, after-hours trading happens through electronic communication networks (ECNs). These are electronic systems that match buy and sell orders automatically without going through traditional exchange mechanisms.

How After-Hours Trading Actually Works

After-hours trading functions quite differently from standard trading sessions Here’s what you need to know about the mechanics

Schedule and Timing

• After-Hours Trading: 4:00 p.m. ET to 8:00 p.m. ET (same day)
• Premarket Trading: Generally 4:00 a.m. ET to 9:30 a.m. ET (before next trading day)
• Together, these extended sessions are called “extended-hours trading”

Trading Process

During after-hours trading

1. Orders are placed through your broker’s platform (if they offer this service)
2. ECNs match buy and sell orders automatically
3. If a match is found, the trade executes; if not, the order remains unfilled
4. Most brokers only allow limit orders (not market orders) to protect investors

Restrictions to Be Aware Of

Most brokers impose certain limitations during after-hours trading:

• Maximum order size (often 25,000 shares)
• Limited order types (usually only limit orders)
• Orders typically expire at the end of the extended session
• Not all securities are available for trading

Why Do Stocks Move After Hours?

Now for the big question: what causes stocks to go up (or down) after the regular market closes? Several key factors drive these movements:

1. Earnings Releases

The most common catalyst for after-hours price movements is the release of earnings reports. Many companies strategically announce their quarterly results after market close to give investors time to digest the information before regular trading resumes.

When a company beats earnings expectations, its stock often jumps immediately in after-hours trading. Conversely, disappointing earnings can send shares plummeting. The Nvidia example from 2019 mentioned in the source material perfectly illustrates this – the stock jumped nearly 6% in just the first five minutes after their earnings announcement!

2. Major News Announcements

Significant company news released after the bell can trigger substantial price movements:

• Merger and acquisition announcements
• FDA approvals for pharmaceutical companies
• Leadership changes or scandals
• Major contract wins or losses
• Unexpected corporate restructuring

3. Economic Data Releases

Sometimes, important economic indicators released when markets are closed can impact stock prices in after-hours trading, especially if the data significantly differs from expectations.

4. Low Liquidity Price Movements

With fewer participants and less volume, even relatively small buy or sell orders can move prices significantly. This is one reason why after-hours movements can sometimes appear exaggerated compared to regular trading hours.

The Advantages of After-Hours Trading

There are several potential benefits that attract traders to the after-hours market:

Opportunity to React to Breaking News

After-hours trading gives you the chance to position yourself advantageously before the next day’s open. If positive news breaks at 5:00 p.m., you don’t have to wait until 9:30 a.m. the following day to buy shares – potentially missing out on gains.

Convenience for Busy Schedules

If you work during regular market hours, after-hours trading allows you to still participate in the market when your schedule permits. This flexibility can be invaluable for part-time traders or those with demanding day jobs.

Potential for Greater Price Volatility

While volatility is often considered a risk, it can also create profit opportunities for traders who understand how to capitalize on price swings. The increased volatility during after-hours sessions can sometimes offer better entry or exit points than during regular hours.

The Risks and Disadvantages You Can’t Ignore

Despite its advantages, after-hours trading comes with significant risks that every investor should understand:

Low Liquidity and Wide Spreads

The most significant drawback is the reduced trading volume after hours. This creates:

• Difficulty executing trades at desired prices
• Wider bid-ask spreads (the difference between what buyers are willing to pay and what sellers are asking)
• Greater price volatility that may not reflect true market sentiment

Price Uncertainty

The prices you see during after-hours trading might not represent the best available prices across all platforms. Unlike during regular hours, where consolidation of the best available prices occurs, after-hours quotes typically come from a single ECN.

Professional Competition

You’re often trading against professional and institutional investors who have more resources, better information, and more sophisticated tools. This uneven playing field can put retail investors at a disadvantage.

Temporary Price Movements

As seen in the Nvidia example, sometimes dramatic after-hours moves don’t hold up when regular trading resumes. The stock jumped $15 after hours but gave back most of those gains during the next regular session.

Real-World Example: How After-Hours Trading Impacts Stock Prices

Let’s look at the real-world example of Nvidia from 2019 mentioned in the source material:

When Nvidia reported its fourth quarter and annual results after market close:

• The stock jumped from $154.50 to nearly $169 (about 9%) within 10 minutes of the announcement
• Trading volume was highest in the first 5 minutes (700,000 shares) then dropped quickly
• By 5:00 p.m., volume had decreased to 100,000 shares while the price remained around $165

However, when regular trading resumed the next morning:

• Much higher volume appeared (2.3 million shares in the first 5 minutes)
• The price dropped from $164 to $161 at the open
• By day’s end, the stock closed at $157.20, only $3 higher than the previous day’s close
• Most of the after-hours gains had evaporated

This example perfectly demonstrates that after-hours movements, while dramatic, don’t always persist into regular trading hours when more market participants can weigh in.

How to Trade Stocks After Hours

If you’re interested in participating in after-hours trading, here’s a practical guide to getting started:

1. Find a Brokerage That Offers Extended Hours Trading

Not all brokerages offer after-hours trading, and those that do may have different trading windows. Popular brokers that support after-hours trading include:

• TD Ameritrade
• E*TRADE
• Fidelity
• Charles Schwab
• Robinhood

For example, Wells Fargo allows after-hours trading from 4:01 p.m. ET until 6:30 p.m. ET.

2. Understand Your Broker’s Restrictions

Before placing your first after-hours trade, familiarize yourself with your broker’s specific rules, which may include:

• Limited order types (usually only limit orders)
• Maximum order sizes
• Securities eligible for extended hours trading
• Special fees or commissions

3. Use Limit Orders Only

Due to the volatility and liquidity issues, it’s generally wise to use only limit orders during after-hours sessions. This ensures you don’t get filled at unexpectedly high or low prices.

4. Start Small

When first trading after hours, begin with smaller position sizes until you understand the dynamics. The reduced liquidity can make it difficult to exit large positions quickly.

5. Be Extra Cautious with Earnings Reactions

While earnings announcements often create the biggest after-hours moves, they can also be the most volatile and unpredictable. Sometimes the initial reaction reverses completely by the next day.

How After-Hours Trading Affects Opening Prices

One of the most important things to understand is how after-hours trading influences the next day’s opening price. Several factors come into play:

Price Discovery Process

After-hours trading serves as a price discovery mechanism, where traders establish what they believe is a fair value based on new information. This process often influences where the stock opens the next morning.

Volume Considerations

If after-hours volume is exceptionally high, the price movement is more likely to carry over into the next day’s open. Conversely, if very few shares traded after hours, the regular session participants may establish a completely different price.

News Digestion Time

The extra hours give investors more time to analyze news, earnings reports, or other catalysts. By morning, a more balanced view often emerges, which may differ from the initial knee-jerk reaction.

After-Hours vs. Standard Trading: Key Differences

Here’s a quick comparison of the major differences between standard trading and after-hours trading:

Final Thoughts: Should You Trade After Hours?

After-hours trading can provide valuable opportunities for investors, but it’s definitely not for everyone. I personally view after-hours trading as a tool for specific situations rather than a regular trading strategy.

For most long-term investors, sticking to regular market hours is probably the safer approach. The increased liquidity and narrower spreads during normal hours typically provide better execution prices and less volatility.

However, if you’re an active trader who closely follows market news, or if you simply can’t trade during regular hours due to your work schedule, after-hours trading might be worth exploring. Just remember to start small, use limit orders, and be aware of the additional risks.

The next time you see one of your stocks making a big move after hours, you’ll have a better understanding of what’s happening—and whether that movement is likely to stick when regular trading resumes.

Have you ever traded stocks after hours? What was your experience like? I’d love to hear about it in the comments!

After-hours trading works through electronic markets that match buy and sell orders after the main stock exchanges close, allowing investors to react to news outside of regular hours.

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.