- Stock prices change after hours because trading continues after the ringing of the closing bell. The major U.S. exchanges are open for regular sessions from 9:30 a.m. to 4 p.m., and during this time specialists monitor each stock and facilitate the matching of buyers and sellers. In after-hours trading, buyers and sellers are matched with computer networks, and the rules are a bit different. Breaking news is often first reported after the close of the regular session, and this drives much of after-hours trading. The hours of the after market are from 4 to 6:30 p.m. Foreign investors, who might be unavailable when the regular session opens, can use the after-hours session to access U.S. markets at their convenience.
- The most often cited reason for trading in the after-hours market is to get an advantage on the next day's trading. Many view the activity after hours as a leading indicator of the following opening. In reality, though, the market is never so predictable, and trading from day to day doesn't necessarily follow the direction of after-hours trading. Still, many companies report their earnings after the close of the regular session. This is a major motivation for after-hours traders who attempt to interpret press releases, SEC filings and other news as fast as possible.
- Because there are no human specialists present at the exchange to facilitate trades during after-hours, many brokers only allow the entry of limit orders. This means a buyer or seller must name a specific price at which he wants to trade. The computer network can easily match opposite buy and sell orders of equal size and price to create an after-hours trade, but the risk of the order being unfilled is much higher. There are relatively few participants in the after-hours market compared to the regular session, so the spread between bids and asks is usually much wider. The majority of those who trade after hours represent large institutions, which generally have better information than the average retail investor and faster computer systems. Prices can move very quickly after hours in response to new information. Options do not trade after hours.
