Trading on the American stock market takes place from 9:30 to 16:00 New York time . But exchanges also have extended hours before the opening and after the close of the main session. They are called “Pre-Market” and “Post-Market” (sometimes the post-market is called “After Hours”). 

During these periods, you can also buy and sell shares, although such trading has several important nuances. Below we talk about them in detail.

Pre-Market and Post-Market Schedule
It is difficult to say exactly when overtime starts and ends in the US market. It’s as if there is no single time – it has its own on different exchanges:

  • The website of the New York Stock Exchange (NYSE) indicates that preliminary activity begins at 6:30 or 7:00 am New York. Post-market on the NYSE lasts from 16:00 to 20:00.
  • According to NASDAQ rules , the pre-market starts at 4:00 am New York time. Post-market starts at 16:00 and ends at 18:30.
  • Also, in addition to the NYSE and NASDAQ, the United States has a developed network of electronic exchanges (Electronic Communication Network, ECN) . On them, the schedule of pre- and post-trading hours may also differ.

In any case, the most “adequate” activity usually unfolds from about 8:00 to 9:30 in the pre-market and from 16:00 to 17:30 in the post-market. Although in the post-market, “normal” trading can last longer, because some Americans are more comfortable investing in the evening – after school or work.

Also, the schedule of extended hours may depend on your brokerage company. Some brokers give access to the pre-market and post-market only one hour before the market opens and one hour after the market closes. 

In our opinion, this is a reasonable approach that helps to save many investors from the risks of an additional trading session.

6 nuances of pre-market and post-market

There are several reasons why trading outside of the main session is “dangerous”. 

1. Volumes are reduced, there are few participants, the price can change sharply and stronglyThe frequency and volume of transactions at this time is much lower than during the main session. There are not enough buyers and sellers – the order book (glass) is poorly filled. This happens because during the extra hours there are no or almost no on the market:

  • Major market makers
  • High-frequency and algorithmic trading programs (HFT)

Investors are actually left to themselves and exchange shares in conditions of the lowest possible liquidity. As a result, the difference between the best buy and sell prices (spread) can be tens of cents or even a few dollars.

The numbers in the picture are approximate. The purpose of this example is to show that in less liquid stocks, pre-market or post-market spreads can be very wide. But even in super-liquid stocks like Apple, the distance between the best buy and sell prices can widen at this time from one cent to 10, 20 or even 30.

Let’s explain it more clearly: this is similar to the situation if you came to the exchanger to buy a dollar, and you would see the buying and selling prices “474 to 550 tenge per dollar”. And if you come after that in a couple of hours, then this difference will be only “474 to 476 tenge per dollar.” 

Than all this threatens
The price can move in big jerks. All of a sudden you see the stock go up 40 cents in a second, then drop again 30 cents, then spike up the dollar… A very risky swing! You can hurry up and overpay heavily for stocks that you would have bought cheaper and with less risk during the main session.

Therefore, extended hours are definitely not the time for short-term trades, where profit or loss depends on small movements, and you can only earn on large volumes. With such impetuous price changes, a trader can “break” – losses can be large and fast. 

2. News risks
In addition to low volumes and large spreads, there is always strong news coming out in extra hours. They can move individual stocks or the entire market. 

  • Companies publish quarterly reports.
  • Important macroeconomic statistics are announced.
  • Major politicians and representatives of central banks are speaking.

Most of these events are transferred to the pre-market or post-market, because during the main session there are many more participants in the market. Therefore, it is better to release important news during additional hours – so that fewer investors and traders suffer in the event of a strong reaction. 

Often it is due to large news movements in the pre-market and post-market that the main trades open with a price gap (gap).

Gaps on LULU shares after the release of quarterly reports. The company reported on the post-market. After that, transactions were made outside the main session, and the next day trading opened with a price gap.

It is important to note here that if the change in the price of shares in the pre-market or post-market is too large – say, the price will fall by 20% – then trading may be suspended. It’s called Halt. It’s frustrating to be in this situation because your money will actually be frozen. The position cannot be closed even with hands. And it is not known at what price the auction will open subsequently: whether the opening will be in your favor or against you is a matter of chance.

3. Only limit orders work – trading quickly on the market will not work
For the safety of investors during extended trading hours, transactions can only be carried out with limit orders. In such an order, you set the price yourself. Specify $65 – it means that the shares will be sold to you exactly at $65. Sometimes they can sell even cheaper, but definitely not more expensive. 

This helps to avoid slippage and trade execution at unexpectedly bad prices. Also, when all investors trade only limit orders, they put less pressure on stocks. It is more difficult to push the price in one direction, because this requires a flow of market orders.

The downside of being safe here is that limit order trading can be slower and inefficient. If you enter $65, but no one is willing to sell to you at that price, your bid will simply queue up. As a result, you may not receive shares, or vice versa, you will not be able to sell them when necessary.

4. Protective stop orders do not work
Stop Loss orders are usually market orders. This is a very important condition, because a protective stop order should close the trade as quickly as possible and fix the trader’s losses. If you do not get rid of the erroneous position immediately, as soon as it became clear that the idea was wrong, the losses can increase several times – we do not need this.

But we have already found out that market orders do not work during extended hours! This means that the investor will not have “insurance” that will automatically close the position if the price goes in the direction of loss. You will have to monitor the situation much more closely and, in which case, try to close the deal manually.

5. Harder to draw conclusions from graphs

There are fewer transactions, because of this, the price chart is not drawn as clearly as during the main trading session.

Microsoft 5 Minute Stock Chart

In the picture above, the pre-market and post-market zones are highlighted in color. Please note that there are gaps between the Japanese candlesticks at this time. Some of the candles appeared as flat lines because there was literally one trade at the same price. 

But this is Microsoft – a very liquid security, for which the average daily volume is 38 million shares! 

For less liquid securities, the schedule of an additional session may be generally empty and uninformative. To trade such stocks at this time, you need to focus only on the glass of quotes and the tape of transactions. You will not have another “guiding card”, and you risk making transactions blindly.

6. Risk of trading against professionals
We said above that there are no large market makers and algorithmic traders in the market during extra hours. But it is also worth mentioning that professionals from large investment companies, banks and hedge funds are working at this time.

For them, the stock market is the main working environment. Therefore, they do not miss the opportunity to trade longer and be the first to work out important news. At the same time, the experts know very well the peculiarities of the market outside the main session. They have trading strategies for such periods; there is access to the best analytical resources and trading platforms; they communicate with traders from other companies. Sometimes, literally by phone or via Bloomberg chat, traders discuss certain trades that can be made in the pre-market. 

Think about it. It is naive to believe that a novice speculator with a couple of thousand dollars can seriously compete with leading industry professionals. And it is during the extended hours that such a confrontation can arise with the greatest probability.

What to do with this information for long-term investors
If you invest money and do not plan to sell shares for a year or even several years, then all these risks should not bother you much. 

Of course, you should keep in mind that outside of the main trading session, it will be more difficult for you to open a big deal. You also have to buy shares with a limit order anyway. But, in general, you can buy securities during extended hours. Further price fluctuations are no longer your concern.

What should active traders do with this information?
If you open trades intraday, we recommend that you first think seriously: why do you even need to trade during such risky periods? 

Of course, if you know specific strategies for pre-market or post-market, go for it! But this is the path for experienced market participants who understand well what they are doing.For most retail investors, however, we would recommend trading during the main session, when all the necessary functions and orders are working to the maximum.

  • Pre-market time is best used by active traders to prepare for trading and search for ideas. 
  • Post-market time – for analyzing trades for the day, working on mistakes and preparing for the next day.

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