After-Hours Stock Trading (AHT)

Definition

The term after-hours stock trading refers to the exchange of shares on a market between the hours of 4:30 p.m. and 8:00 p.m. Eastern Standard Time.  After-hours trades include the buying and selling of shares at an agreed upon price, just like the trades that occur during regular market hours.

Explanation

After-hours trading is one of two forms of extended hours trading, the other being pre-market trading.  The development of electronic communication networks (ECN) meant investors no longer relied on manual intervention to trade stocks.  ECNs allowed buyers and sellers to interact via electronic means both during regular trading hours as well as during extended hours.

After-hours trading begins at 4:30 p.m. and ends at 8:00 p.m. Eastern Standard time (EST).  During this time, the market functions in the same way it does during regular hours.  Companies oftentimes release earnings reports before or after the market closes.  Investors will participate in after-hours trading to take advantage of this new information.  That being said, there are a number of significant disadvantages associated with this approach, including:

  • Liquidity:  since there are fewer investors participating in AHT, it is more difficult to sell shares at a fair price.
  • Spreads:  lower trading volumes typically result in larger bid and ask prices, making it more difficult for an investor to have their order executed at the desired price.
  • Volatility:  lower trading volumes will also result in larger price swings than those experienced during regular hours.

Related Terms

pre-market trading, regular trading hours