Within the last two decades, the overall experience of trading stocks has changed drastically. When I opened my first brokerage account with Scottrade, I had to fill out paperwork and scan it in as part of the application. When approved, I paid a commission of around $7 for each buy and sell order. Today, most brokerage platforms have entirely done away with trading commissions. This has resulted in a brand new wave of platforms, such as Robinhood, Public, and M1 Finance.
Since commission-free trading has become the norm, the differentiating factor between brokerages has become their features. One of the most common offerings these days is extended trading hours. In this article, I’ll be explaining what this is and whether or not it’s a good idea for investors to utilize this feature.
What are Extended Trading Hours?
As the name suggests, extended trading hours means trading in an “extended window,” beyond the normal hours of the stock market. Normal market hours are Monday through Friday, 9:30 AM to 4:00 PM EST. The stock market is closed on certain federal holidays as well.
There are two types of extended trading:
- Pre-Market Trading – Ability to trade stocks before the market opens, usually starting around 8:30 AM EST, but sometimes as early as 6:00 AM EST.
- After Hours Trading – Ability to trade stocks after the market closes, usually as late as 6:00 PM EST, but sometimes as late as 8:00 PM EST.
Dozens of brokerage platforms offer extended trading hours today, but the hours in which you can trade vary from platform to platform.
Should You Trade In Extended Hours?
The short answer? No. A lot of people who are using this trading window are often trying to buy a stock around earnings. That’s because most companies report before the market opens or after it closes. If a stock reports earnings at 5:00 PM after the market is closed and the value shoots up after hours, an investor may try to get in on the action. The problem becomes that prices can often shoot up too high, leading to a sell off the following morning or day as other investors are trying to take profits.
In my opinion, the only time when you may want to use extended trading hours is if you’re on the selling side. Perhaps, with this knowledge about stocks running up after earnings, it might be a good idea to unload some or all of your shares after earnings are announced. This is especially important if there is a wild run up in the pre-market or after hours sessions. As such, it might be handy to have extended trading hours available within your trading platform.
In addition, there are often wild sell offs that take place in the pre-market before most investors begin participating. Oftentimes, the sell off early on in the morning results in a rally later that day. Watching your stocks in the pre-market and being able to trade could lead you to make emotional decisions based on price swings early in the day. Maybe not having the option to trade at all could potentially protect you from yourself! With all of the risks surrounding individual stock ownership, I’ve partnered with a few companies looking to give traders better tools. One of them is Front Research, an app for monitoring your portfolio and analyzing stocks. Full disclosure, I’m an angel investor in this company.
“Investors need to bear in mind that the stock market is a global phenomenon. Asia, Europe and London are ahead of the US for example, so trades being placed there are going to influence the stock market in the pre-market trading hours. Whether or not you decide to trade during these hours is up to the individual investor. We simply provide investors with tools to understand why their investments are moving in the pre-market or after hours trading sessions.” – Bam Azizi, Co-Founder of Front.