Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

After Hours Trading

What it is:

After hours trading is the trading that occurs on electronic market exchanges after regular stock market trading hours have ended.

How it works (Example):

In the United States, pre-market trading occurs between 8:00 a.m. and 9:30 a.m. Eastern Standard Time (EST), and after hours trading typically occurs between 4:00 p.m. and 6:30 p.m. EST. After hours trading is usually abbreviated with the acronym AH.

Until recently, after hours trading volume has been relatively low -- generally reserved for institutional investors with the confidence to partake in unconventional trading methods. However, the volume of after hours trading has risen in recent years as retail investors become more familiar with the concept of trading over an electronic communication network (ECN), which is how after hours trading takes place. 

ECNs connect buyers and sellers over a network, eliminating the need for an intermediary such as a broker or investment bank. The Nasdaq market is an example of an ECN. Rather than a physical location such as the New York Stock Exchange, the Nasdaq is a network of securities traders who engage and trade directly with one another.

Why it Matters:

After hours trading allows investors to act quickly to major events that serve as an investment "catalyst," such as sudden corporate misfortune, political turmoil overseas, late-breaking news, etc.

However, after hours trading can also be subject to the whims of less-seasoned investors. Consequently, veterans on Wall Street sometimes deride after hours trading as "amateur hour."