Iíve heard that stocks can trade after the market closes. Is that true and how does it work?
Most of the major stock exchanges including the NASDAQ and the New York Stock Exchange open for trading at 9:30am EST and close at 4pm EST. These are their normal or regular trading hours. However, since the early 1990s, investors have been able to trade stocks before and after these regular trading hours.
Trades that occur between 8am EST and 9:30am EST are considered ďpre-marketĒ trading and trades that occur after 4:30pm EST and 8pm EST are considered ďafter-hoursĒ trading. In general, trading in the pre-market and after-hours markets work the same as trades made during the normal trading hours where buyers and sellers complete trades at a price that is mutually agreed upon.
However, trading before or after normal trading hours usually comes with higher levels of risks including lower liquidity, lower trading volume, and increased volatility. All of these risks can affect the price you receive when you buy or sell a stock. These risks can result not being able to sell a stock when you want to or buying or sell a stock at a price that you feel is less than optimal.
Keep in mind that the risks of trading in the pre-market and after-hours markets can be significant as this trading environment was originally geared towards institutional investors. Individual investors looking to trade during these hours should make sure that they fully understand the risks associated with this type of trading.
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