Why trade after hours? How, and why? (2024)

Basically the title.

I have no interest in doing this, I’m just curious about how it works, why it exists, who is trading after hours (individuals, hedge funds?) and what brokerages let you do it (and why others don’t).

Do folks trade large ETFs (VOO, VTI) after hours too (and if so… why?), or are people mostly just buying/selling individual stocks?

Thanks!

Cranberry44 wrote: ↑Sat Nov 18, 2023 9:02 amBasically the title.

I have no interest in doing this, I’m just curious about how it works, why it exists, who is trading after hours (individuals, hedge funds?) and what brokerages let you do it (and why others don’t).

Do folks trade large ETFs (VOO, VTI) after hours too (and if so… why?), or are people mostly just buying/selling individual stocks?

Thanks!

I don’t have a personal need to do this.

I suppose if you were absolutely certain you had some information asymmetry you may want to trade before the next market open. But most people have no reason to do this.

muffins14 wrote: ↑Sat Nov 18, 2023 9:28 am

Cranberry44 wrote: ↑Sat Nov 18, 2023 9:02 amBasically the title.

I have no interest in doing this, I’m just curious about how it works, why it exists, who is trading after hours (individuals, hedge funds?) and what brokerages let you do it (and why others don’t).

Do folks trade large ETFs (VOO, VTI) after hours too (and if so… why?), or are people mostly just buying/selling individual stocks?

Thanks!

I don’t have a personal need to do this.

I suppose if you were absolutely certain you had some information asymmetry you may want to trade before the next market open. But most people have no reason to do this.

I agree, but that doesn’t answer any of my questions, lol.

bberris wrote: ↑Sat Nov 18, 2023 9:40 amI see some way out of line trades on some closed end funds premarket. I don't know if they are real or not, but there are definitely scalpers waiting for market orders premarket.

Is premarket the same as after hours? Or is there some delimitation between the two?

Again, purely out of curiosity - I just do not understand how “the market operates” outside of regular trading hours.

Cranberry44 wrote: ↑Sat Nov 18, 2023 9:02 amwho is trading after hours (individuals, hedge funds?) and what brokerages let you do it (and why others don’t).

Do folks trade large ETFs (VOO, VTI) after hours too (and if so… why?), or are people mostly just buying/selling individual stocks?

When there is significant market-moving new information that is released after 4 PM (the close of the regular market), it is natural that investors with strong opinions about the new value of their holdings would want to trade them based on that. For example, in the last few weeks, most companies have released their earnings reports and those are typically done after the market closes around 4-5pm. If you owned Apple or Nvidia or Microsoft and read their earnings for the last quarter, as well as their new guidance for their business prospects, you might well want to buy or sell their shares.

Catering to such demand, the stock exchange allows trading to continue until 8 PM, as well as starting as early as 4 AM, to facilitate these types of trades. Brokers, looking for additional trading revenue, typically support some manner of after hours trading, depending on their level of technological ability. This might mean starting at 7 AM rather than 4 AM, and then continuing until 5 PM, like Vanguard does, or possibly as late as 8 PM.

I think it would be rare for the kind of index fund investor to have a strong view on the market in general, or a strong view that they really want to buy or sell their shares in the aftermarket, so I expect there’s limited activity in those types of ETFs. However, SPY as the major market ETF is actively traded, during the whole time, the stock exchanges are open.

Tanelorn wrote: ↑Sat Nov 18, 2023 10:37 am

Cranberry44 wrote: ↑Sat Nov 18, 2023 9:02 amwho is trading after hours (individuals, hedge funds?) and what brokerages let you do it (and why others don’t).

Do folks trade large ETFs (VOO, VTI) after hours too (and if so… why?), or are people mostly just buying/selling individual stocks?

When there is significant market-moving new information that is released after 4 PM (the close of the regular market), it is natural that investors with strong opinions about the new value of their holdings would want to trade them based on that. For example, in the last few weeks, most companies have released their earnings reports and those are typically done after the market closes around 4-5pm. If you owned Apple or Nvidia or Microsoft and read their earnings for the last quarter, as well as their new guidance for their business prospects, you might well want to buy or sell their shares.

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Catering to such demand, the stock exchange allows trading to continue until 8 PM, as well as starting as early as 4 AM, to facilitate these types of trades. Brokers, looking for additional trading revenue, typically support some manner of after hours trading, depending on their level of technological ability. This might mean starting at 7 AM rather than 4 AM, and then continuing until 5 PM, like Vanguard does, or possibly as late as 8 PM.

I think it would be rare for the kind of index fund investor to have a strong view on the market in general, or a strong view that they really want to buy or sell their shares in the aftermarket, so I expect there’s limited activity in those types of ETFs. However, SPY as the major market ETF is actively traded, during the whole time, the stock exchanges are open.

Thanks! That makes sense and is helpful!

On my stock ticker app, I see after hour percentage changes when the market closes.

Are these changes due to folks trading the likes of SPY, VOO, VTI, ITOT, etc., or are the percentage changes due to changes in the values of the stocks they hold?

as a lazy investor I really wish I could set my limit orders to trade after hours to take advantage of the volatility...

alot of times some company announces earnings, and their stock pops after hours, but returns closer to its old price before the next market open

if I'm happy selling XYZ corp for 50$/share during normal hours (good 'til canceled), I'm certainly happy to get that same price in the afterhours market.

Cranberry44 wrote: ↑Sat Nov 18, 2023 10:41 amOn my stock ticker app, I see after hour percentage changes when the market closes.

Are these changes due to folks trading the likes of SPY, VOO, VTI, ITOT, etc., or are the percentage changes due to changes in the values of the stocks they hold?

Changes you see for ETFs are trades at prices different than the close. Whether those trades are due to the underlying stocks movements or supply and demand due to macro news depends on the specific situation.

Tanelorn wrote: ↑Sat Nov 18, 2023 12:35 pm

Cranberry44 wrote: ↑Sat Nov 18, 2023 10:41 amOn my stock ticker app, I see after hour percentage changes when the market closes.

Are these changes due to folks trading the likes of SPY, VOO, VTI, ITOT, etc., or are the percentage changes due to changes in the values of the stocks they hold?

Changes you see for ETFs are trades at prices different than the close. Whether those trades are due to the underlying stocks movements or supply and demand due to macro news depends on the specific situation.

Very interesting… thank you!

privateer79 wrote: ↑Sat Nov 18, 2023 11:33 amas a lazy investor I really wish I could set my limit orders to trade after hours to take advantage of the volatility...

Schwab allows this. I see GTC+extended hours and Day+extended hours as two of the options for a limit order.

Caduceus wrote: ↑Sat Nov 18, 2023 11:20 pmOne could ask, "why not trade after hours"? If we want markets to be efficient, then it makes sense to have prices that constantly incorporate new information.

So what? All that new information -- and more -- will be available to everyone at 9:30 AM the next morning -- or Monday morning over a weekend. 24-hour trading has nothing to do with "efficiency".

OP:

A common trading strategy is to set GTC limit orders at levels of support or resistance from a chart, then let the market fill the orders when the price is hit. I have had that happen in after hours trading many times, when the market trading volume is lighter, and therefore more volatile. For that reason, I would never place a market order after hours.

billaster wrote: ↑Sun Nov 19, 2023 11:46 am

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Caduceus wrote: ↑Sat Nov 18, 2023 11:20 pmOne could ask, "why not trade after hours"? If we want markets to be efficient, then it makes sense to have prices that constantly incorporate new information.

So what? All that new information -- and more -- will be available to everyone at 9:30 AM the next morning -- or Monday morning over a weekend. 24-hour trading has nothing to do with "efficiency".

I agree with Caduceus. Longer market hours, or even continuous trading, would be more efficient. Using the "wait until tomorrow" logic, we could only open markets one day a year. If new information comes up during the year, just wait until trading day and put it to use. Obviously that is less efficient than allowing information to be used immediately, as soon as it becomes known. Time is money, and even information has time value.

After-hours (or pre-market) trading has low volume and higher volatility. Sometimes, others really want to get rid of their shares and because there are fewer buyers outside of regular trading hours, that means they sell for less. If you know you want to buy some shares, sometimes you can get a deal with a limit order to buy outside of hours. That said, sometimes, the other side is selling for good reason, and if you'd waited until the next market opening, you'd get an even better price, so it's no free lunch.

If you have a limit order to sell if the price drops below a threshold, that'd be a dangerous one to have active after-hours as it's much more likely to be tripped by a spurious drop.

bikeeagle1 wrote: ↑Sun Nov 19, 2023 2:07 pm

billaster wrote: ↑Sun Nov 19, 2023 11:46 am

Caduceus wrote: ↑Sat Nov 18, 2023 11:20 pmOne could ask, "why not trade after hours"? If we want markets to be efficient, then it makes sense to have prices that constantly incorporate new information.

So what? All that new information -- and more -- will be available to everyone at 9:30 AM the next morning -- or Monday morning over a weekend. 24-hour trading has nothing to do with "efficiency".

I agree with Caduceus. Longer market hours, or even continuous trading, would be more efficient. Using the "wait until tomorrow" logic, we could only open markets one day a year. If new information comes up during the year, just wait until trading day and put it to use. Obviously that is less efficient than allowing information to be used immediately, as soon as it becomes known. Time is money, and even information has time value.

You're gonna have to define what you mean by "efficient" and quantify how 24/7 trading benefits investors. Particularly, what do you mean by "obviously less efficient". It isn't obvious to me.

billaster wrote: ↑Sun Nov 19, 2023 6:01 pm

bikeeagle1 wrote: ↑Sun Nov 19, 2023 2:07 pm

billaster wrote: ↑Sun Nov 19, 2023 11:46 am

Caduceus wrote: ↑Sat Nov 18, 2023 11:20 pmOne could ask, "why not trade after hours"? If we want markets to be efficient, then it makes sense to have prices that constantly incorporate new information.

So what? All that new information -- and more -- will be available to everyone at 9:30 AM the next morning -- or Monday morning over a weekend. 24-hour trading has nothing to do with "efficiency".

I agree with Caduceus. Longer market hours, or even continuous trading, would be more efficient. Using the "wait until tomorrow" logic, we could only open markets one day a year. If new information comes up during the year, just wait until trading day and put it to use. Obviously that is less efficient than allowing information to be used immediately, as soon as it becomes known. Time is money, and even information has time value.

You're gonna have to define what you mean by "efficient" and quantify how 24/7 trading benefits investors. Particularly, what do you mean by "obviously less efficient". It isn't obvious to me.

Well actually, I don't HAVE to define it for you, but I will try to answer you by repeating something I brought up earlier in the form of a question. Do you think that markets would be more or less efficient than they are if they only traded one day a year instead of daily like they do now?

bikeeagle1 wrote: ↑Sun Nov 19, 2023 8:10 pmDo you think that markets would be more or less efficient than they are if they only traded one day a year instead of daily like they do now?

Except they don't trade daily. Regular markets are open five days a week and not on weekends. Sometimes they are closed for a 3-day weekend. They are only regularly open six and half hours out of 24 and sometimes only half days.

It's been like that for over a century. Everything is fine.

billaster wrote: ↑Sun Nov 19, 2023 8:20 pm

bikeeagle1 wrote: ↑Sun Nov 19, 2023 8:10 pmDo you think that markets would be more or less efficient than they are if they only traded one day a year instead of daily like they do now?

Except they don't trade daily. Regular markets are open five days a week and not on weekends. Sometimes they are closed for a 3-day weekend. They are only regularly open six and half hours out of 24 and sometimes only half days.

It's been like that for over a century. Everything is fine.

Efficient to me means news is reflected in the stock price because people are able to trade on the news. Longer hours means more access and more efficiency.

snackdog wrote: ↑Sun Nov 19, 2023 10:09 pm

billaster wrote: ↑Sun Nov 19, 2023 8:20 pm

bikeeagle1 wrote: ↑Sun Nov 19, 2023 8:10 pmDo you think that markets would be more or less efficient than they are if they only traded one day a year instead of daily like they do now?

Except they don't trade daily. Regular markets are open five days a week and not on weekends. Sometimes they are closed for a 3-day weekend. They are only regularly open six and half hours out of 24 and sometimes only half days.

It's been like that for over a century. Everything is fine.

Efficient to me means news is reflected in the stock price because people are able to trade on the news. Longer hours means more access and more efficiency.

If that is your definition, then given that the market is only open for six and half hours out of a 24-hour day and closed on weekends, in fact closed more than 80% of the time, you must consider markets to be quite inefficient if you think 24/7 access would make a measurable difference.

jeffyscott wrote: ↑Sat Nov 18, 2023 5:02 pm

privateer79 wrote: ↑Sat Nov 18, 2023 11:33 amas a lazy investor I really wish I could set my limit orders to trade after hours to take advantage of the volatility...

Schwab allows this. I see GTC+extended hours and Day+extended hours as two of the options for a limit order.

thank you! I actually have some accounts there so I'll check it out next time I'm looking to trade!

billaster wrote: ↑Sun Nov 19, 2023 11:46 am

Caduceus wrote: ↑Sat Nov 18, 2023 11:20 pmOne could ask, "why not trade after hours"? If we want markets to be efficient, then it makes sense to have prices that constantly incorporate new information.

So what? All that new information -- and more -- will be available to everyone at 9:30 AM the next morning -- or Monday morning over a weekend. 24-hour trading has nothing to do with "efficiency".

That's not correct. In the case of the regional bank crisis, many regional banks released material information after-hours. A lot of the trading action happened during that time, and if you waited until the next morning, you'd already be down 30% or up 30%. I rarely trade pre-market or after hours, but I had a sizable position in PACW and I did trade after-hours because they had a habit of releasing significant information outside market hours.

snackdog wrote: ↑Sun Nov 19, 2023 10:09 pm

billaster wrote: ↑Sun Nov 19, 2023 8:20 pm

bikeeagle1 wrote: ↑Sun Nov 19, 2023 8:10 pmDo you think that markets would be more or less efficient than they are if they only traded one day a year instead of daily like they do now?

Except they don't trade daily. Regular markets are open five days a week and not on weekends. Sometimes they are closed for a 3-day weekend. They are only regularly open six and half hours out of 24 and sometimes only half days.

It's been like that for over a century. Everything is fine.

Efficient to me means news is reflected in the stock price because people are able to trade on the news. Longer hours means more access and more efficiency.

Agreed! To me, the price of a stock represents the current value of a company based on the combined opinion of all investors considering all publicly known information. In that way, futures markets are more efficient than stock markets. Not everyone can trade futures markets, so overnight trading of stocks helps to democratize the stock market, reducing the advantage of more connected traders.

Here's an example. Suppose that, after the closing bell, google announces that earnings missed estimates for the last quarter. Since google represents a large portion of the S&P 500, futures traders can sell /ES contracts immediately or even short them, knowing that the earnings miss will be reflected at the open the next day. When the cash markets open the next day, futures traders can then close their short positions for a nice gain, while retail investors have to experience the gap down in VOO (or SPY, or VFINX, etc.).

If you are retired, and planning to withdraw money from your stocks position the next day to pay expenses, you would definitely see overnight trading as being more efficient. Actually, writing this reminded me to check to see which ETFs are currently available for overnight trading. Just doing a quick google search, I see that VOO is not on the list, but SPY is. That alone makes SPY more "efficient" to me instead of VOO, even if SPY has a higher expense ratio.

billaster wrote: ↑Sun Nov 19, 2023 10:59 pm

snackdog wrote: ↑Sun Nov 19, 2023 10:09 pm

billaster wrote: ↑Sun Nov 19, 2023 8:20 pm

bikeeagle1 wrote: ↑Sun Nov 19, 2023 8:10 pmDo you think that markets would be more or less efficient than they are if they only traded one day a year instead of daily like they do now?

Except they don't trade daily. Regular markets are open five days a week and not on weekends. Sometimes they are closed for a 3-day weekend. They are only regularly open six and half hours out of 24 and sometimes only half days.

It's been like that for over a century. Everything is fine.

Efficient to me means news is reflected in the stock price because people are able to trade on the news. Longer hours means more access and more efficiency.

If that is your definition, then given that the market is only open for six and half hours out of a 24-hour day and closed on weekends, in fact closed more than 80% of the time, you must consider markets to be quite inefficient if you think 24/7 access would make a measurable difference.

Not necessarily because *most* of the material activity influencing value occurs during or near the time the markets are open.

Cranberry44 wrote: ↑Sat Nov 18, 2023 9:02 amBasically the title.

I have no interest in doing this, I’m just curious about how it works, why it exists, who is trading after hours (individuals, hedge funds?) and what brokerages let you do it (and why others don’t).

Do folks trade large ETFs (VOO, VTI) after hours too (and if so… why?), or are people mostly just buying/selling individual stocks?

Anytime I place a limit order, I choose both regular and after hours (if I can, not all brokers support this).

I don't care when my order is filled, if I get my price I am happy, and this just increases the chances of that happening.