The stock market doesn’t close unexpectedly very often. Just look at the NYSE’s timeline for proof. If anything, its consistent in only closing on the weekends and federal holidays. But every once in a while, it has to make a rare, unexpected closure.
Hurricane Sandy was one of those rare occasions where the stock market closed due to weather. Amid all of this, earnings reports continued as usual. But investors couldn’t move on the news. Unless you had access to a foreign exchange you were just out of luck, forced to wait until the market eventually opened later in the week.
But what about regular trading days? On days when the market is scheduled to open, there are ways to trade even when it’s closed.
After Hours Trading
The stock market (through the NYSE and Nasdaq) has regularly scheduled trading hours from 9:30 a.m. to 4:00 p.m. Eastern Time. However, trading outside that timeframe is known as after hours trading. It was originally limited to the wealthy and institutional investors.
That has all changed thanks to technology and ECN’s (Electronic Communications Networks). After hours trading is between 4:00 p.m. and 8:00 p.m. Eastern Time. Now the average investor can join in on the fun and added risk of trading when the market is closed.
One thing to note, every online broker has a different set of rules for after hours trading. Some may require certain order types, might shorten the trading window or even charge a higher fee. Check with your online broker before making any after hours trades.
You are not limited to after market trading either. The early risers and impatient investors can trade before the market opens too. Pre-market trading is available from 8:00 a.m. to 9:30 a.m. Eastern Time.
Just like after market trading, it comes with added risks. Your broker may have special rules regarding pre-market trading too.
A Better Alternative
There are more risks involved with after hours trading. The added benefit is a nice selling point for online brokers. But most investors should stick to the regular market hours and leave the after hours trading to the experts.
If you just can’t help yourself, try to lower your risks as much as possible. Make sure you only use limit orders. Which should help lower the volatility risk.
A better alternative is to change the time in force of an order. Time in force is the length of time your order lasts until it executes, expires, or cancels. Most trades are set to automatically cancel at the end of the regular trading day. But you can change this by setting the exact date you want an order to be cancelled.
So you can place an order after the market closes today but set it to expire tomorrow or even next week. You’ll avoid the after market session but your trade will be in place for the next trading day.
Pre-market and after hours trading comes with added risk. Make sure you understand all the risks involved before placing any orders.