After-Hours Trading

After Hours Trading

The practice of trading a security after an exchange has closed. After-hours trading occurs over-the-counter, but both listed and unlisted securities may be traded. After-hours trading is often less liquid than regular trading because participation by market makers is voluntary, whereas market makers are required to serve as a counterparty for a security during trading hours. The price of a security in after-hours trading may influence is price on the next trading day. The practice is less commonly called extended-hours trading.

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after-hours trading

The trading of securities after the exchanges are closed. After-hours trading often refers to trading a listed security in the over-the-counter market after the exchanges have been closed for the day. This fairly common practice is not illegal. Also called extended-hours trading.

Case Study Research indicates individual investors trading outside normal market hours (9:30 a.m. to 4:00 p.m. EST) can expect to incur increased transaction expenses. The higher expense of after-hours trading stems from reduced liquidity and the resulting larger spreads between bid and ask quotations. For example, a stock that typically trades with a spread of 5¢ to 10¢ during regular market hours might have a spread of 25¢ to 50¢, or even more, in after-hours trading. Actively traded stocks during regular hours often become relatively illiquid in after-hours trading, when few orders are posted and even small transactions can result in large price fluctuations. The potential volatility and lack of liquidity in after-hours trading are likely to result in individual investors paying too high a price when buying stock and receiving too low a price when selling stock.