Trading After the Market Closes: What Investors Need to Know

Did you know that some investors can buy and sell securities outside regular market hours?

Trading outside regular market hours, known as extended hours trading, accommodates trading prior to and following regular market hours. While this can give investors more choice and flexibility to react to earnings announcements, economic news, or global events, it also comes with additional risks.

How is extended hours trading different?

When markets are open during regular market hours, there are usually many buyers and sellers actively trading. Outside regular hours, trading activity is often lower, which can lead to:

  • Fewer buyers and sellers, making it harder to execute trades
  • Greater price swings, as fewer trades can have a larger impact on prices
  • Wider bid-ask spreads, which can increase trading costs
  • Prices that differ significantly from regular market hours

Be careful with market orders

A market order is executed at the best available price. During extended hours, limited liquidity and wider bid-ask spreads can mean that price received is very different from what you might expect.

To help control the price at which your order is executed, consider using a limit order, which lets you set the maximum price you're willing to pay or the minimum price you're willing to accept for a sale.

Questions to ask your dealer

If your dealer offers extended hours trading, make sure you understand:

  • When trading is available
  • How orders are handled
  • What risks apply
  • Any restrictions on order types or securities
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Before You Trade: The Bottom Line

Extended hours trading can involve greater risks than trading during regular market hours, including lower liquidity, wider bid-ask spreads, and increased price volatility. Not all investment dealers offer extended hours trading, and it may not be appropriate for every investor. Consider your investment objectives, risk tolerance, and understanding of the product before trading.

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