What is Extended Trading?
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 Does Extended Trading Work?
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 Does Extended Trading Matter?
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.'