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US Extended Hours Trading Explained

​Our guide explains what extended hours trading is and how its works, the benefits and risks for investors, examples of where extended hours trading benefit investors (or increase the risks) and frequently asked questions.
Updated 6 May 2024

Summary
  • Extended hours trading allows investors to buy and sell stocks outside the traditional market hours of major U.S. exchanges like the NYSE and NASDAQ, which typically operate from 9:30 AM to 4:00 PM Eastern Time (ET). 
  • Standard trading hours on U.S. stock exchanges do not align conveniently with the local times for New Zealand traders and active investors, which are as follows:
  • Winter hours: Trading hours are from 1:30 AM to 8:00 AM the following day (NZST = UTC+12).
  • Summer hours: Trading hours shift to 2:30 AM to 9:00 AM the following day, further extending into early morning hours (NZDT = UTC+13).
  • These hours are highly inconvenient for most New Zealanders and restrict many investors from participating in live trading. This makes reacting to real-time market changes, such as economic announcements, earnings releases, or geopolitical developments that often impact stock prices during U.S. hours is difficult.

​Extended hours have unique benefits and risks, and to explain what you need to know, our guide covers:

What Is Extended Hours Trading and How Does it Work?

​Extended hours trading includes both pre-market and after-hours sessions:
  • Pre-Market Session: Trading that takes place before the regular market opens, generally starting as early as 4:00 AM ET and ending at 9:30 AM ET.
  • After-Hours Session: Trading that occurs after the market closes, from 4:00 PM ET to 8:00 PM ET.

During extended hours, transactions are facilitated through Electronic Communication Networks (ECNs), which matches buy and sell orders electronically without using a traditional stock exchange. This means that active trades are settled similarly to during market hours. For more details, we suggest reading Stake's detailed guide. 

Our View:
  • Extended hours trading provides significant opportunities for New Zealand investors to engage with the U.S. stock market on a schedule that suits their needs and to react swiftly to market news. 
  • However, the benefits come with risks, including reduced liquidity and increased volatility. For this reason, investors need to approach extended hours trading with a well-considered strategy and an understanding of the potential pitfalls.

Understanding the Benefits and Risks of Extended Hours Trading

​While there are benefits of having longer trading hours, it’s not without its risks, as we explain in detail below. 

Benefits include:
  1. React to news and earnings reports promptly: Investors can trade immediately in response to news events that occur outside of regular trading hours, potentially gaining an edge before the broader market reacts.
  2. Convenience for different time zones: This is particularly beneficial for investors in time zones like New Zealand's, where normal U.S. market hours fall outside typical waking hours.
  3. ​Ability to manage risk more effectively: Extended hours trading allows investors to manage their positions around the clock, which is particularly useful in managing risk in volatile markets. Investors can adjust or exit positions in response to developments without waiting for the regular market to open.

Risks include:
  1. Reduced liquidity: Fewer participants during extended hours result in lower trading volume, making it difficult to execute trades at desired prices.
  2. Increased volatility: The reduced volume can also lead to greater price fluctuations, increasing the risk of losses.
  3. Wider spreads: The difference between the bid and ask prices is typically larger during extended hours, potentially increasing the cost of trades.
  4. Limited information: Trading decisions during extended hours may have to be made with less information available. Many financial analyses and reporting services operate on a schedule based on regular market hours, which can disadvantage extended hours traders.

Examples of Where Extended Hours Trading Benefits Investors (Or Increases the Risks)

​To explain how investors use extended hours, we have included three examples to help make the benefits (and risks) clearer. 

Example 1: Positive Earnings Announcement (Tesla, Inc.)
  • Scenario: Tesla announces its quarterly earnings after the U.S. market closes, significantly surpassing analyst expectations. The news is released at 4:05 PM ET, just after the regular trading hours.
  • Action: A New Zealand investor, aware of the scheduled earnings release, waits for the announcement during the U.S. after-hours session. Seeing the positive results, the investor buys shares of Tesla at 4:15 PM ET using an extended hours trading platform such as Stake.
  • Outcome: The price of Tesla shares spikes immediately following the announcement due to investor enthusiasm. By participating in after-hours trading, the New Zealand investor can purchase shares at a price just slightly above the closing but substantially below the opening price the next day when the broader market reacts to the news.
  • This example shows the advantage of acting on significant corporate news immediately, gaining a favourable entry point before the general market can respond during regular hours.

Example 2: Negative Product News (Apple Inc.)
  • Scenario: Apple Inc. unexpectedly announces a significant delay in releasing its latest iPhone model due to supply chain issues. The announcement comes out at 7:00 PM ET, during after-hours trading.
  • Action: An investor in New Zealand sees the news shortly after it breaks and decides to sell Apple shares to avoid potential losses. They place a sell order during the after-hours session.
  • Outcome: The investor manages to sell shares of Apple before a sharp price decline, which occurs as more traders react to the news. However, the spread is wider due to lower liquidity, and the sale price is less favourable than it might have been during regular hours. The next day, the stock opens at a significantly lower price, confirming the investor's decision to sell and highlighting the cost paid in spread.
  • This example demonstrates the ability to mitigate losses by reacting swiftly to adverse news. However, it also shows the potential cost of wider spreads in after-hours trading.​

Frequently Asked Questions

Can anyone trade during extended hours?

Yes, most investors with access to platforms supporting extended hours trading can participate. However, only some share investing apps offer extended hours despite the convenience. Stake and Tiger Brokers offer this free of charge as part of their standard service.

Are there specific strategies for trading during extended hours?

Yes - strategies during extended hours often focus on limit orders to manage risks associated with wider spreads and volatility. Traders might also prioritise highly liquid stocks to improve execution certainty.

How are extended hours different from regular trading hours?

Besides operating times, the main differences include thinner liquidity, less transparency over order flows, and the absence of market makers, all of which can affect trade execution and pricing.

What common scenarios would be useful for extended hours?

  • ​Earnings Announcements: A company announces its quarterly results after the market closes, leading to significant price movements. Investors can react immediately during after-hours trading.
  • Global Events: Developments such as geopolitical tensions or economic announcements in other countries outside U.S. market hours can be immediately factored into trading decisions during pre-market or after-hours sessions.
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