What to Know About After-Hours Trading

September 12, 2024 Kevin Horner
What is after-hours trading? How does it work? Learn about the rules, risks, and benefits of extended-hours trading.

Have you ever turned on the news and heard reports of stocks making moves in after-hours trading after a big earnings announcement? Have you wondered what after-hours trading actually is and how it works, and what risks are involved? Here are some answers.

Extended hours

Normal market hours are 9:30 a.m. to 4 p.m. ET. However, there are also sessions before the start of regular trading and again after the close. These two extra sessions are known collectively as extended-hours trading.

During the pre-market session, Schwab clients can trade from 7:00 a.m. ET to 9:25 am ET on Schwab.com or Schwab Mobile or round the clock on thinkorswim platforms by choosing an EXTO order type (see table for details, overnight trading is limited to a select number of securities.

During after-hours trading, Schwab clients can trade from 4:05 p.m. to 8 p.m. ET on Schwab.com or Schwab Mobile or round the clock on thinkorswim platforms by choosing an EXTO order type. 

Executions and rules

Extended-hours trading is possible thanks to automated order-matching systems called electronic markets. An electronic market is simply a service that matches up buy and sell orders. For example, if you place an order to buy 200 shares at $45, the system searches for an order to sell at least 200 shares at $45. If it finds one, the trade is done. If not, it won't fill. 

Commissions and settlement times are the same as for the regular session. However, other differences may apply. 

Not all order types are accepted during extended-hours trading. Limit orders to buy, sell, or short are permitted, but stop and stop-limit orders aren't. Nor are orders with special conditions such as fill-or-kill, immediate-or-cancel, or all-or-none. 

In general, extended-hours orders are good only during the designated session, and don’t carry over into any other session.

That said, thinkorswim trading platforms allow you to keep your trades open longer if you define your timeframe as “GTC_EXT,” which means Good Til Canceled, including the Extended Hours. 

Be aware that if you're using a GTC_EXT order with thinly traded securities, multiple executions might be necessary to complete the order. That might not be a concern if you’re trading listed securities—which aren't subject to fees or commissions when placing online orders for U.S. securities—but international and over-the-counter stocks may trigger fees or commissions on a per-execution day basis. 

Advantages and risks

Extended-hours trading offers two potential advantages:

  • Convenience: Some traders' schedules prevent them from placing trades and seeing them fill during the normal session. Extended-hours trading gives them an opportunity to check out the current quotes, place a trade, and potentially even have that order fill outside of regular session hours.
  • Ability to react to news events: Many companies report results after the close of the regular session. Extended-hours traders can immediately place trades to manage their positions without having to wait until the next day's open and potentially miss meaningful price swings. 

So, how about the risks?

  • Uncertain prices: In the regular session, the quotes you see are consolidated and represent the best available prices across all trading venues. In the extended-hours market, on the other hand, you may see prices from only one venue, and these may not reflect the prices displayed in other electronic trading systems for the same security.
  • Lower liquidity: Because fewer shares tend to trade after hours, spreads between the bid (the highest price offered by all buyers) and the ask (the lowest price offered by all sellers) can be wide. Some stocks may simply not trade after hours.
  • No index values: Index levels generally aren’t calculated or disseminated for public use after hours, which could pose a challenge for individual investors hoping to trade certain index-tracking products during extended hours. Professional traders may have access to proprietary systems that can quickly calculate index values based on individual stock prices, which might give them an edge over individual traders.

Bottom Line

Trading in the extended sessions isn’t for everybody. Those traders who understand both the potential risks and opportunities, however, could find it worthwhile.

  • Regular trading session
  • Extended-hours sessions
  • Regular trading session
    Orders can be placed at any time and will beexecuted only from 9:30 a.m. to 4:00 p.m. ET.
  • Extended-hours sessions
    Orders can be placed for the following sessions: 

    For orders placed on Schwab.com or Schwab Mobile: 

    7:00 a.m to 8:00 p.m ET with five-minute closures before and after regular market hours. 

    For orders placed on thinkorswim platforms: 

    7:00 a.m. to 8:00 p.m. ET with five-minute closures before and after regular market hours.

    Overnight trading session (EXTO) orders are 24-hour continuous orders that expire at 8 p.m. ET every market day. For example, an EXTO order placed at 2 a.m. ET Monday morning would be active immediately and remain active from then until 8 p.m. ET Monday night. A trade placed at 9 p.m. ET Monday night would be active immediately and remain active until 8 p.m. ET Tuesday night. The overnight trading session is limited to a select number of securities. 
  • Regular trading session
    Trading occurs on exchanges like the New YorkStock Exchange (NYSE) and Nasdaq, and through a variety of venues, includingmarket makers and other market centers. 
  • Extended-hours sessions
    Similar to regular market sessions, trading occurs on exchanges like the New York Stock Exchange and Nasdaq and through a variety of venues, including market makers and other market centers. 
  • Regular trading session
    Many order types and restrictions are accepted,including: market, limit, stop-limit, all-or-none, etc.
  • Extended-hours sessions
    Only limit orders are accepted.
  • Regular trading session
    All order sizes are accepted.
  • Extended-hours sessions

    For pre-market and after-market trading sessions on Schwab.com, there is no maximum quantity on a single order. 

     

    For an overnight trading session, 50,000 shares, or a notional value of $10 million dollars, is the maximum quantity on a single order. 

  • Regular trading session
    Many security types are available, including:stocks, options, bonds, mutual funds, etc.
  • Extended-hours sessions
    Most listed and Nasdaq securities are available in the extended hours session.
  • Regular trading session
    Different timing and order choicesare available, including: Day, GTC, IOC and FOK.
  • Extended-hours sessions

    Pre-market, after-hours, and during the overnight session, order types are good only during the session for which they were placed. Seamless orders that participate in pre-market, regular market, and after-hours trading are available to be placed GTC. The overnight trading session is limited to a select number of securities. 

     

    Note that GTC_EXT must be chosen to place overnight trades on thinkorswim trading platforms.
  • Regular trading session
    In general, higher trading activity means moreliquidity and a greater likelihood of order execution.
  • Extended-hours sessions
    Lower trading activity may lower the likelihood of an order being executed, as well as wider spreads and greater price fluctuations.
  • Regular trading session
    The quotes you receive are consolidated and represent the best available prices across all trading venues. exchanges, Market makers and specialists work to ensure customers get the best available buy or sell prices. 
  • Extended-hours sessions
    Quotes and fills aren't consolidated and represent the current prices available through the market. As a participant in the extended-hours trading network, the market may also offer access to prices available in other participating markets but not necessarily all venues open for extended-hours trading. Best execution isn't guaranteed.