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Most investors understand major stock exchanges have regular trading hours or set times each day when trading happens on the exchange. In the U.S., the Nasdaq Stock Market regularly trades from 9:30 a.m. to 4 p.m. ET. The morning’s first trade establishes a stock’s opening price, and the 4 p.m. final trade creates the closing price. The Nasdaq after-hours trading is the time period once markets close when investors can buy and sell stock and has been happening for a long time.

Key Takeaways

  • Nasdaq after-hours trading happens between 4 – 8 p.m.
  • Electronic communication networks have made Nasdaq after-hours trading accessible to the average investor.
  • The pre- and after-hours Nasdaq markets typically have less liquidity, lower volume, and more volatility than the regular market.
  • Typically, price changes in the Nasdaq after-hours market effect stocks the same way they would during standard hours.

What Is Nasdaq After-Hours Trading?

There are three market periods in which shares can be traded: Standard trading hours, after-hours trading, and pre-market trading. Nasdaq after-hours trading starts at 4 p.m. ET once the stock exchange closes and ends at 8 p.m. ET.  After-hours trading is done via ECNs with volume usually thinning out earlier in the session.

Nasdaq Stock Exchange

  • Pre-Market Trading: Monday – Friday from 4 – 9:30 a.m. ET
  • Standard Trading: Monday – Friday from 9:30 a.m. to 4 p.m. ET
  • After-Hours Trading: Monday – Friday from 4 – 8 p.m. ET

U.S. stock exchanges, including the Nasdaq, have adjusted hours for various holidays, being closed the entire day for nine holidays, and closing early for three others.

Who Can Trade During Nasdaq After-Hours Sessions?

Pre- and after-hours markets work the same way as regular markets do with stocks being bought and sold between investors at agreed-upon prices. Up until the 1990s, Nasdaq after-hours trading was utilized primarily by high-net-worth and institutional investors. The introduction of electronic communication networks (ECNs) resulted in two main changes to after-hours trading. It allowed large institutional investors the ability to interact anonymously, basically hiding their actions and made Nasdaq after-hours trading more accessible to the individual investor.

Stock Pricing Differences During Extended Hours Trading

The pre- and after-hours Nasdaq markets typically have more volatility, lower volume, and less liquidity than the regular market. This can have significant effects on the price investors end up receiving for their shares. For this reason, most experienced investors utilize a limit order on any stock that they buy or sell outside standard trading hours.

Typically, price changes in the Nasdaq after-hours market effect stocks the same way they would during standard hours. For example, a $2 increase in the Nasdaq after-hours market is the same as a $2 increase in the regular market. Therefore, if an investor has a stock that decreases from $12 to $10 during the market’s standard hours and then increases by $2.25 to trade at $12.25 during Nasdaq after-hours trading the investor will have experienced a $2 loss during the day session ($12-10), but because the price rose during Nasdaq after-hours, they would have a $0.25 gain per share.

However, when the Nasdaq opens for standard hours the next day when most individual investors are selling, the same stock may not still be selling at the same price as it was during Nasdaq after-hours trading. For example, say the price of a stock significantly increases during Nasdaq after-hours trading because of an increased sales rumor. This rumor could result in several investors looking to sell immediately when the Nasdaq opens. This increases selling pressure and potentially drives the stock’s price below the previous day’s after-hours level.

Price changes happening during after-hours trading help show how the market reacts to new information released after Nasdaq standard hours have closed. However, price changes happening during after-hours are more volatile than standard hours prices. This means investors should be careful not to rely on them as accurate reflections of what a stock will trade at when the Nasdaq opens the next day.

In the past, individual investors could only trade during standard market hours. Nasdaq after-hours trading was reserved for the institutional investor. Today, with the proliferation of ECNs and the internet, the Nasdaq is more open than ever, with the average investor free to trade during pre-and after-hours trading times. The day investors will have the ability to trade 24 hours a day, seven days a week likely isn’t that far off.

Benefits of Nasdaq After-Hours Trading

Access to Nasdaq after-hours trading provides investors with the opportunity to make significant gains and several other benefits, including:

  • Trading on Fresh Information: Taking advantage of Nasdaq after-hours trading allows investors to quickly react to fresh information or breaking news stories before the Nasdaq opens the next day.
  • Pricing Opportunities: While there is increased volatility in the after-hours market, investors may also appealing prices during this time.
  • Convenience: Especially for investors preferring to trade during off-peak times, Nasdaq after-hours trading provides them with this additional flexibility.

Dangers and Risks

In addition to the benefits, Nasdaq after-hours trading offers investors. It also presents a unique set of dangers and risks investors need to be aware of:

  • Less Liquidity: There are significantly fewer sellers and buyers during Nasdaq after-hours trading. This results in less trading volume for a stock making it more difficult to convert them into cash.
  • Wide Spreads: Lower trading volume may result in a wider spread between the bid and ask price, making it harder for investors to have their orders executed at favorable prices.
  • Tough Competition for Individual Investors: While the average investor is not able to participate in Nasdaq after-hours trading, they are still competing against larger institutional investors who have access to more resources than most individual investors.
  • Volatility: Compared to standard-hours, after-hours is thinly traded, meaning investors will likely experience severe fluctuations in prices during Nasdaq after-hours trading.

Here an example of the type of risks investors may experience with Nasdaq after-hours trading:

  • An investor is looking to sell their Disney shares for $150 in the session after the standard Nasdaq has closed. The highly liquid nature of the after-hours Nasdaq market results in the highest bid from the limited number of buyers being only $140. They can either adjust their limit price to $140 and sell right away, or they can keep their original price and accept the risk of a partial or not-filled order. Nasdaq after-hours trading ends at 8 p.m. ET, and all unexecuted orders will be canceled.

NASDAQ After-Hours Trading Real-World Example

A good example of how Nasdaq after-hours trading works and the dangers associated with it are the earnings results for Nvidia Corp (NVDA) for February 2019. Quarterly results for NVDA were reported on February 14, 2019. This resulted in the price jumping in price from $154.50 to almost $169 in 10 minutes after the news broke.

  • For the first five minutes of trading, approximately 700,000 shares of the stock were traded, with the price jumping nearly 6%.
  • Between 4:25 and 4:30 p.m., ET volume slowed significantly, with only 350,000 shares trading.
  • By 5 p.m. ET, the stock was still trading around $165, but volume trading had slowed to only 100,000 shares.

The next morning, however, was a completely different story. Now all market participants had an opportunity to get in on Nvidia’s results.

  • Nearly 2.3 million shares of NVDA stock were traded between 9:30 and 9:35 a.m. ET.
  • This was more than three times the value in the first minutes of the Nasdaq after-hours trading from the previous day.
  • This resulted in NVDA stock price dropping from $164 to $161
  • Trading lower throughout the day saw NVDA close at $157.20, just $3 above the previous day’s closing price after being up almost $15 during the after-hours session.

While there are many benefits available to investors participating in Nasdaq after-hours trading, it’s imperative investors are just as mindful of the risks. Learn more about benefiting from the advantages and minimizing the risks by scheduling a free online session with one of Raging Bull’s team of marketing experts.

Author: Jeff Williams

Jeff Williams is a full-time day trader with over 15 years experience. Thousands of entry-level and experienced traders alike – day-traders and swing-trade small cap stock traders – credit Jeff with guiding them to turning small accounts into big accounts.

Jeff’s "Small Account Challenge" shows people how to transform accounts from a few thousand dollars into $25k, $50k or even $100k.

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