So, you’re interested in buying a stock and you’re ready to place the order,
but the market has already closed for the day. What do you do?
I’m Education Coach Michael Kealy, and this is Comment Below.
We’ve gotten a lot of questions about how trading hours work,
so we figured we’d dive into the world of trading outside of normal trading hours. Can it be done?
Yes, but there is some nuance. Let’s break down the actual hours you can trade,
the securities you can trade, the order types you can use, and how it all works together.
So, regular market hours are considered 9:30 a.m.
to 4 p.m. Eastern Time. That’s because the New York Stock
Exchange and most other exchanges for that matter are based in New York City.
That means early mornings for West Coast traders and late nights for European traders.
But you can trade outside of these normal hours in what’s known as Extended-Hours Trading.
Typically, premarket runs from 4 a.m. Eastern Time to the opening bell,
and after-hours trading lasts from the closing bell to 8 p.m. Eastern,
though you’ll want to check with your brokerage because each firm has different times.
Timing also depends on the security you’re looking to trade:
Some don’t trade outside of regular hours at all, and
some trade 24 hours a day, five days a week. Billions of shares are traded every day during
regular hours on the U.S. exchanges alone, so why might you trade during extended hours?
Well, for starters, it’s pretty convenient. If you have a day job,
it can be pretty tough to stay on top of every market move while you’re at work.
Extended-Hours Trading also lets you react in real time to market news like company earnings reports,
leadership changes, or new product launches.
These announcements are typically made outside of market hours on purpose to
give investors time to absorb the information
and hopefully avoid reactive trading and excessive volatility.
Trading on the news without having to wait for the market to reopen
could allow you to capture some additional gains.
But there are some disadvantages to Extended-Hours Trading too.
Orders may be partially executed or not at all. Liquidity tends to be much lower, bid-ask spreads
much wider, and volatility much higher. Take a look at Doordash. Its stock price jumped from $114
to $128 after hours between May 13 and May 14, 2021. Or look at Gamestop a few months earlier,
on January 27 and 28. Between the bells, the stock dipped to around $220, rallied to $513
and dipped all the way back down to around $250. That’s how Extended-Hours Trading works on a
conceptual level, but how do you actually place trades for the pre- and postmarket sessions?
Let’s jump in to thinkorswim to show you exactly how to place an extended-hours trade.
Keep in mind, mutual funds, bonds and most options do not trade in extended hours.
I’ll open up the Trade tab and load up Apple. Ticker symbol AAPL.
Let’s go ahead and select the ask price to buy. It’ll load up an order ticket.
Many brokerages only allow limit orders in the extended hours. According to the SEC, this is a
way to protect investors from unexpectedly bad prices. So, I’ll enter a limit price of $132.
Now, this next part is really important if I want my trade entered for one of
the extended-hours sessions. I’ll select the Time in Force drop-down. You can see
there are several choices here beyond the usual day and good till canceled.
Let’s break down the choices. If you choose day, your trade will be valid only for the regular
trading hours of that day. If you try to enter a regular day order outside of normal trading hours,
it’ll take effect at the next day’s opening bell. GTC stands for good till canceled, which
typically allows the order to stay active for six months but only during regular trading hours.
You’ll also notice EXT in the drop-down. This simply extends the order into the extended-hours
sessions, so if you place an EXT order at any point after the start of premarket trading,
it will be valid for any of the day’s trading sessions.
If an EXT order is placed after 8 p.m., it will be valid for all trading hours the following day.
The same is true for a GTC_EXT order; you can place it at any time,
and the order could execute at the limit price or better in any trading session
premarket, regular, or after-hours
Some users may also see AM and PM choices. If you select AM or PM, your trade will only be
valid during the premarket or after-hours sessions respectively. For this trade, I’ll choose GTC_EXT,
meaning I’m sending an order that will be valid in any trading session.
Once my order is setup, I’ll select Confirm and Send, and then select Send to place the trade.
There are also some ETFs that trade 24/5 on thinkorswim. To find these,
pull up the 24-Hour Trading public watchlist.
Keep in mind that you can’t place extended-hours trades in paperMoney®, so there’s no way to
practice this without real money on the line. So, while there are some benefits
to trading after-hours or in the wee hours in the morning, it’s not for the faint of heart.