MarsYu / iStock.com

The physical ringing of the bell on the floor of the New York Stock Exchange (NYSE) is an old tradition that signals the start and end of today’s trading session. While the real bells – and even the trading floors themselves – are no longer needed, it’s still an honor to be asked to ring, and financial networks still broadcast the moment every morning and evening of every day. of scholarship.

The economy and your money: All you need to know
Find out: Dividends: why are they important for your investment strategy?

No trades can be made on the exchange until the opening bell rings at 9:30 a.m. ET and none can be done after the closing bell rings at 4:00 p.m. ET, but that doesn’t mean all is quiet there. night.

Stock markets aren’t the only game in town

As the NYSE, Nasdaq Composite and the rest of the exchanges open and close at the sound of the bell, you can trade before and after market hours – if your broker allows – by placing orders through electronic communication networks (ECN). ECNs are digital systems that bypass traditional trading by automatically matching sell orders to buy orders outside of normal trading hours.

Important: do you know the differences between scholarships?

In the United States, pre-market trading can take place as early as 4 a.m., but often takes place between 8 a.m. and 9:30 a.m., and most after-hours trading occurs between 4 p.m. and 8 p.m. This does not mean that you will have access to or be limited to this entire trading window, depending on your broker. Along with this, your broker may or may not charge additional fees.

To find: How Profit Estimates Impact Your Investments

Why does someone need to trade after hours?

There are many different factors that can change the markets and cause investors to buy or sell a company’s stock – and all of these things don’t happen during regular trading hours. Investors want the ability to trade before the market opens and after it closes because:

  • Profit reports after the bell can reveal good news or bad news about a stock.
  • Activity in foreign markets takes place in different time zones.
  • Important news like the resignation of a CEO or the announcement of a merger can arrive sooner or later in the day.
  • The traditional trading day coincides with the traditional working day and many people are at their jobs when the exchanges are open.

See: How the SEC Affects You and the Economy
Read: What to expect from an economic boom

Are the transactions executed the same?

Market orders – immediate buy or sell orders – can only be executed during standard market sessions during normal trading hours, according to Schwab. Before and after market hours trades should be done through limit orders. Sellers use limit orders to set minimum price floors. Buyers use them to set maximum price caps. In any case, there is no guarantee that limit orders will be executed.

Important: The inverted yield curve and why it matters
To find: What are IPOs and are they worth investing in?

Are there any downsides to after hours trading?

The ability to trade outside normal hours without going through traditional exchanges can give investors an advantage. But it also comes with significant risks, including:

  • Limited liquidity: Far fewer investors are active outside of the bells, which means trading volume is falling and bid-ask spreads are much wider. Low liquidity makes it more difficult to buy and sell stocks. In many cases, it is difficult to execute trades after hours.
  • High volatility: Many out of hours transactions are made in response to news or earnings reports, which can cause dramatic price swings as the market processes new information. Often times, investors do best when the dust settles during regular trading hours the next day.
  • Inconsistent pricing: In the standard trade-based marketplace, transactions are done by matching the lowest price a seller is willing to accept with the highest price a buyer is willing to pay – everyone gets the best price available at the time of the transaction. In before and after business hours trading, different ECNs use different pricing structures. Your trades are carried out according to the ECN that your broker uses.

This article is part of GOBankingRates’ “Economy Explained” series to help readers navigate the complexities of our financial system.

More from GOBankingTaux

Last updated: October 11, 2021

About the Author

Andrew Lisa has been writing professionally since 2001. Award winning writer Andrew was once one of the youngest nationally distributed columnists for the nation’s largest newspaper union, the Gannett News Service. He worked as the business editor for amNewYork, the most circulated newspaper in Manhattan, and as the editor for TheStreet.com, a financial publication at the heart of the Wall Street investor community in New York.