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

Extended Trading

What it is:

Extended trading is the pre-market or after-market trading that occurs on electronic market exchanges either before or after regular stock market trading hours.

How it works (Example):

In the United States, extended trading occurs between 8:00 a.m. and 9:30 a.m. Eastern Standard Time (EST), and after-market 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, extended trading volume has been relatively low -- typically the practice of big institutional investors who had the confidence to partake in unorthodox trading methods. However, the volume of extended trading has exploded in recent years as retail investors become more comfortable with the concept of trading over an electronic communication network (ECN), which is how extended trading must take 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:

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

However, extended-hours trading can be subject to the emotional whims and fears of less-seasoned and less sophisticated investors. Consequently, veteran pros on Wall Street sometimes derisively refer to extended trading as "amateur hour."

[InvestingAnswers Feature: 5 Signs Your Emotions Are Taking Control of Your Investing.]

Related Terms View All
  • Auction Market
    Though most of the trading is done via computer, auction markets can also be operated via...
  • Best Execution
    Let's assume you place an order to buy 100 shares of Company XYZ stock. The current quote...
  • Book-Entry Savings Bond
    Savings bonds are bonds issued by the U.S. government at face values ranging from $50 to...
  • Break-Even Point
    The basic idea behind break-even point is to calculate the point at which revenues begin...
  • Calendar Year
    If Company XYZ starts its fiscal year on January 1 and ends its fiscal year on December...