In contrast to cryptocurrencies, most stock markets only trade from Monday to Friday and during a limited number of hours each day. Additionally, it is common for stock exchanges to have pre-market and after-hours trading sessions, which feature essential differences that should be taken into account by any trader worth its salt.
In this article, I will go through the main differences in trading during extended trading hours, the pros and cons of doing so, the types of orders that are allowed, and the additional restrictions that the most relevant stock brokers might add.
What are extended trading hours?
Extended trading hours consist of a few hours before and after regular trading hours where trading is allowed, although with certain restrictions. Pre-Market hours are between 4 AM and 9:30 AM, and after-hours occur between 4:00 PM and 9 PM in US stock markets (Eastern Standard Time).
The following table lists the regular trading hours of the most popular stock markets:
|Stock Exchange||Trading Days||Pre-Market Hours||Regular Trading Hours||After Hours||Timezone|
|Tokio Stock Exchange (JPX)||Monday to Friday||NO||9:00-11:30 and 12:30-15:00||NO||Japan Standard Time|
|Shanghai Stock Exchange (SSE)||Monday to Friday||9:15-9:25||9:30-11:30 and 13:00-15:00||15:0-15:30||China Standard Time|
|Hong Kong Stock Exchange (HKEX)||Monday to Friday||9:00-9:30||9:30-16:00||Closing Auction 16:00-16:08/16:10 (random closing time)||Hong Kong Standard Time|
|London Stock Exchange (LSE)||Monday to Friday||5:05-7:50||8:00-12:00 and 12:02-16:30||16:40-17:15||London/Europe|
|Euronext (XAMS)||Monday to Friday||NO||9:00-17:30||NO||Central European Time|
|Shenzhen Stock Exchange (XSHE)||Monday to Friday||9:15-9:25||9:30-11:30 and 13:00-14:57||NO||China Standard Time|
|Toronto Stock Exchange (TSX)||Monday to Friday||7:00-9:30||9:30-16:00||16:00-17:00||Eastern Standard Time or Eastern Daylight Time|
|Frankfurt Stock Exchange (FSX)||Monday to Friday||NO||8:00-22:00||NO||Central European Time|
|New York Stock Exchange (NYSE)||Monday to Friday||7:00-9:30||9:30-16:00||16:00-20:00||Eastern Standard Time or Eastern Daylight Time|
|Tel Aviv Stock Exchange (TASE)||Sunday to Thursday||NO||Sunday: 9:59-15:39 / 9:59-17:14 (Monday-Thursday)||NO||Israel Standard Time|
Allowed order types during extended trading hours
Most brokers allow their clients to only place limit orders during pre-market and after-hours sessions. Market orders would be dangerous due to the lack of trading volume during extended trading hours, leading to very inconvenient average fill prices. Unlike regular trading hours, order books lack depth, feature large bid-ask spreads, and are highly volatile.
Do stop orders work during extended trading hours?
Stop orders created during regular trading hours due not get executed during extended trading hours, and thus require to be recreated during the extended session to be completed.
All brokers allow to create stop orders outside of regular trading hours, but these will queue in the order book and get executed at market open.
If a news event causes a sudden significant drop in price outside of regular trading hours, stop orders will fail to execute. As a consequence, stop losses are no guarantee of limiting potential losses.
If this were to occur, stop loss orders will get executed at a (probably) much lower price than the stop price. On the other hand, stop limit orders might never get executed if the opening price is below the limit price.
Advantages and disadvantages of trading during extended trading hours
There are specific scenarios where it is convenient to trade during extended trading hours. Having said that, it is always advisable to trade during regular trading hours if possible.
We could list the following advantages and disadvantages of trading during extended trading hours:
- Allows to trade based on news events that take place outside of regular trading hours
- Some companies are traded on multiple exchanges and timezones, and extended-hours trading makes it possible to keep arbitrating based on quoted prices.
- Only limit orders are allowed during extended trading hours
- High bid-ask spread due to low liquidity
- High volatility due to low liquidity
- Certain brokers might charge higher fees
- National Best Bid and Offer are not guaranteed during extended trading hours
- Certain brokers might impose additional restrictions
- Some brokers require pre-approval for trading during extended-hours
Which brokers allow trading during extended trading hours?
Although the trading venue itself determines pre-market and after-hours trading hours, brokers oftentimes impose additional restrictions. The following table details the terms under which you can trade during extended trading hours under different stock brokers. Even though the list is not exhaustive, it covers the most popular available options.
|Broker||Pre-Market||After Hours||Additional Info|
|Charles-Schwab||between 8:05 PM (previous day) and 9:25 AM||between 4:05 PM and 8:00 PM|
|Fidelity Investments||between 8:00AM and 9:28AM||between 4:00 PM and 8:00 PM|
|TD-Ameritrade||between 7:00AM and 9:28AM||between 4:02 PM and 8:00 PM||Offers overnight 24/5 trading of selected securities (see list)|
|E*Trade||between 7:00AM and 9:30AM||between 4:00 PM and 8:00 PM||Offers overnight trading for selected ETFs from Sunday to Thursday|
|Alpaca||between 4:00AM and 9:30AM||between 4:00 PM and 8:00 PM|
|Interactive Brokers (IBKR)||between 7:00AM and 9:30AM||between 4:00 PM and 8:00 PM||IBKR Pro accounts can place pre-market orders starting at 4:00 AM|
|Robinhood||between 7:00AM and 9:30AM||between 4:00 PM and 8:00 PM|
Why do stock markets not trade 24/7?
Before the 1990s, most trading-related activities were executed physically on the trading floor, which required people to gather and agree on a time to do so. Additionally, the total volume traded was much smaller before the popularization of electronic market-makers. Thus, allowing to only trade during limited hours trading hours increased the volume traded during those hours, and as a consequence, price volatility was reduced.
As you can see, the reason behind stocks only being traded during working hours is only historical. Since most of the trades are executed by algorithms, it would be reasonable to conclude that the stock market could be open 24/7, as is the case for cryptocurrencies.
As you can see, having in-depth knowledge of how extended trading hours trading work is not only beneficial but also essential. Not knowing the key aspects, such as the types of orders that can be placed and whether these get executed during these sessions, might lead to substantial losses. Although it might not seem evident initially, it is crucial for properly managing the risk of an actively traded portfolio of stocks.
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