After Hours Trading

After hours trading was once something only achievable by big players in the investing world. Nowadays, anyone can access the opportunities and take advantage of the volatility demonstrated outside of LSE and NYSE market hours.

Whatever your instrument of choice, be it Tilray (TLRY), Square Financial Services (SQ), T Mobile (TMUS) or Disney (DIS), after hours trading requires some special consideration. This article provides an explanation of the concept, how it can benefit traders, what risks are involved and what strategies suit it best.

Brokers With Extended Hours Trading

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    Established in 1989, CMC Markets is a respected broker listed on the London Stock Exchange and authorized by several tier-one regulators, including the FCA, ASIC and CIRO. More than 1 million traders from around the world have signed up with the multi-award winning brokerage.

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    Spreadex is an FCA-regulated broker that offers spread betting opportunities on an impressive 10,000+ CFD instruments including 60 forex pairs. Traders can also take short-term positions on sporting events. The brand has been around for over 20 years and has won multiple awards.

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    Interactive Brokers (IBKR) is a premier brokerage, providing access to 150 markets in 33 countries, along with a suite of comprehensive investment services. With over 40 years of experience, this Nasdaq-listed firm adheres to stringent regulations by the SEC, FCA, CIRO, and SFC, amongst others, and is one of the most trusted brokers for trading around the globe.

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    eToro is a top-rated multi-asset platform which offers trading services in thousands of CFDs, stocks and cryptoassets. Launched in 2007, the brand has millions of active traders globally and is authorized by tier one regulators, including the FCA and CySEC. The brand is particularly popular for its comprehensive social trading platform. Cryptoasset investing is highly volatile and unregulated in the UK and some EU countries. No consumer protection. Tax on profits may apply. 76% of retail CFD accounts lose money.

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    Founded in 1974, IG is part of IG Group Holdings Plc, a publicly traded (LSE: IGG) brokerage. The brand offers spread betting, CFD and forex trading across an almost unrivalled selection of 17,000+ markets, with a range of user-friendly platforms and investing apps. For 50 years, IG has maintained its position as an industry leader, excelling in all key areas for traders.

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    BlackBull is a New Zealand-based CFD broker with trading opportunities on forex, stocks, indices, commodities and cryptos. The broker supports the MetaTrader 4 and 5 platforms as well as TradingView, cTrader and a proprietary mobile app. Clients can trade with high leverage and tight spreads from 0 pips on the broker's ECN accounts.

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    Webull is a multi-regulated trading app that offers stocks, options, forex, cryptos, ETFs, fractional shares and more. The firm is authorized by the SEC, FINRA and FCA and continues to uphold a strong trust rating. Low fees, no minimum investment and generous welcome bonuses have made the discount broker popular with online investors.

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    Firstrade is a US-headquartered discount broker-dealer with authorization from the SEC. The company is also a member of FINRA/SIPC. With welcome bonuses, powerful tools and apps, plus commission-free trading, Firstrade Securities is a popular online brokerage. It is also quick and easy to open a new account.

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    Saxo Markets is a multi-award-winning trading brokerage, investment firm and regulated bank. With a huge 72,000+ trading instruments, plus investment products and managed portfolios, clients have no shortage of opportunities. The trusted brand also offers transparent pricing and top-tier regulatory protection from 10+ agencies including FINMA, FCA & ASIC.

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    Just2Trade is a reliable multi-regulated broker registered with FINRA, NFA and CySEC. The company has 155,000 clients from 130 countries and stands out for its huge suite of instruments and additional features, including a social network, robo advisors and a funded trader programme.

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    Capital.com offer CFDs on a range of markets with competitive spreads and zero commissions. The broker also offers the Investmate app, negative balance protection and leveraged trading.

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    Trading 212 is a European and UK-regulated CFD broker that also offers stock investing and ISAs. It’s best known for its commission-free trading model and beginner-friendly app, which has helped it attract 2.5 million users and £3.5 billion in client assets.

What Is After Hours Trading?

After hours trading sits outside of the main market sessions of big exchanges like the New York Stock Exchange (NYSE) or the London Stock Exchange (LSE). The UK standard market hours are 08:00 to 16:30 GMT, with after hours trading occurring for a few hours on either side, consisting of pre and post-market sessions.

The UK pre-market session runs from 05:05 GMT to 07:50 GMT and the post-market session sits between 16:40 and 17:15 GMT. The American markets have increased their time limits for extended hours trading, offering five hours of pre-market trading from 4 am Eastern time (3 am Central Time, 8 am GMT).

After hours trading strategies

Once the domain of wealthy investors and big financial institutions, technology improvements have given rise to ECN (electronic communication network) brokerages, which opens the doors of after hours trading to individual investors of all sizes. Alternative trading systems (ATSs) also offer after hours brokering opportunities.

After hours trading can be carried out on many different instruments, including stocks, indices and options. The specific instruments, however, will depend on what your broker offers.

After Hours Trading Strategies

There are two common strategies employed for after hours trading, known as news and breakout trading. Each of these capitalises on a different advantageous characteristic of extended-hours markets.

After Hours News Trading

Often touted as the primary reason for after hours trading in the first place, news trading is a strategy that involves rapidly reacting to economic reports and news releases. From massive American corporations like Exxon Mobil (XOM) & 3M (MMM) and UK financial services companies like Hargreaves Lansdown (HL) down to retail stores like Macy’s (M) and JCPenney (JCP), all must publicly release financial reports.

These financial reports, and their forecasts, can be used to inform trading strategies. For example, if market experts predict a positive turnover report for a company, but the report doesn’t meet expectations, the stock price is likely to go down. News traders would likely recognise this and short their stock. After hours news trading works in the very same way.

Breakout Trading

Another popular strategy in after hours trading, breakout investing involves assessing support and resistance levels for short-period swings. When the price breaks beyond one of these levels, you place a long or short order on the instrument to catch its breakout to a new set of support and resistance levels.

Pros of After Hours Trading

While after hours trading provides opportunities for profit in some situations, it isn’t for everyone. Ensure you understand the ins and outs of the concept and strategies before taking the risk.

Some of the main advantages of after hours trading include:

Volatility

After hours trading tends to see higher levels of volatility than regular hours, often due to the lower numbers of active traders. This causes more drastic price movements, opening the door to larger profit possibilities. However, volatility is a double-edged sword, so do be careful.

Convenience

Some traders may lead very busy lifestyles that block out the main market hours from their trading time. After hours trading opens more of the day to trade, allowing busy investors to stay involved.

Similarly, stock markets in other economic areas, such as the USA or Japan, generally have inconvenient opening times for UK investors. Trading after hours allows cross-market trading without needing to work at inconvenient times of the day, so those looking to trade indices like the NASDAQ 100, S&P 500, the DOW and 10-year treasury or stocks like AMC and KMI in the UK, can easily do so.

Opportunity

With most investors and day traders utilising the main market hours, those willing to take the risks of after hours trading are presented with greater opportunities. With some news and reports being released in these after-market hours, traders can react more quickly and get involved in the initial price swings.

Cons Of After Hours Trading

Unfortunately, it is not all plain sailing. If these advantages over main sessions came with no additional risks, everyone would do it. After hours trading best suits those with more adventurous risk appetites for the following reasons.

Low Liquidity

As with many things, the advantage of fewer traders providing more opportunity comes with its own disadvantage. Fewer investors trading in equities and derivatives means that the liquidity of the markets is lower after hours. Traders in these times are less likely to get their price quotes matched, as fewer traders are filling out the other sides of orders.

Greater Volatility

While larger price movements provide more profit opportunities, the volatility also increases the risks of losses. Dramatic price swings go both ways, so be prepared for shock losses and utilise limit orders where you can.

How to start after hours trading

Increase Cost

As liquidity decreases and volatility increases, the market spreads generally increase. Therefore, with the general volatility and liquidity trends of after hours trading, spreads tend to increase. This can reduce the profitability of after hours trades.

How To Start After Hours Trading

Finding A Suitable After Hours Broker

The most important step to begin after hours trading is to choose a broker that supports it. For a broker to facilitate this, it must either be an ECN broker or an ATP broker, which are two different types of brokering structure.

There is a decent range of suitable brokers for after hours trading, and more are popping up all the time. Some of the most popular UK options for buying and selling after hours are Trading 212, IG and eToro.

It is generally beneficial to find a broker with a good demo account offering, allowing traders to familiarise themselves with platforms, instruments and strategies without any financial risk.

Other considerations include spreads, transaction fees, payment options and regulation. Some traders may also aim for a broker with a strong app platform, like Fidelity’s mobile platform. See our UK brokers guide for more detailed tips and reviews of good providers.

Strategise

Once an account has been set up and funded with a suitable broker, an after hours trading strategy should be selected, and you should begin to assess the markets. If you choose to follow a news trading approach, find out when the key report releases are for the instruments you wish to trade. You can then begin to research predictions and plan for trading these releases.

For after hours traders following a breakout approach, ensure you have got to grips with the fundamentals of the strategies. You can then practice on a few real-time breakouts, ensuring you understand fully and are correctly implementing the strategy. Breakout trading can also benefit from a range of technical indicators, including Bollinger bands and fake-out tools.

Top After Hours Trading Stocks For UK Traders

It can often be helpful to see what the general trading population are doing when getting started in a new financial venture. After hours trading is one such venture; beginning with popular stocks will improve liquidity, helping to maximise your profits while you build a foundation of understanding and experience in the sector.

Top UK Stocks

Some of the most traded stocks on the London market are Lloyds (LLOY), Barclays (BARC), Vodafone (VOD) and Nokia (NOKIA).

Top US Stocks

In early 2021, the three most traded after hours stocks on the NYSE are Cisco Systems Inc. (CSCO), Micron Technology Inc. (MU) and Discovery Inc. Series C (DISCK). Also among the top ten are Apple (AAPL) and Microsoft (MSFT), with other noteworthy stocks by volume including GameStop (GME), Tesla (TSLA) and Amazon (AMZN).

To find more information about after hours trading volumes, market gainers and biggest movers, there are plenty of screeners, such as CNN, and trackers online with live charts and graphs, data tables and stock history. These screeners are split between UK and US markets, with the results generally updated the next day, meaning yesterday’s information is published today.

Additional Resources

There are plenty of extra resources available online for those interested in finding out more details to do with after hours trading. YouTube contains a wealth of videos you can watch with well-explained definitions of different strategies, rules and trading opportunities. Beyond traditional guides, there are also interesting articles debating whether after hours trading is unfair and should be illegal, given the low liquidity and potential for market manipulation.

After hours trading tools

Final Word On After Hours Trading

While some institutions and journalists debate whether after hours trading is good or bad for markets, affecting opening prices in ways that are not fair for regular traders, there is no doubt that it offers financial opportunity. For those with suitable experience, capital and risk appetite, analysing price movements and trading UK and US stocks outside of their exchange’s hours provides added volatility and profit potential. Traders should always be careful, however, ensuring strategies are understood and safety nets are in place in case the market moves against you.

FAQ

After Hours Trading, What Does It Mean & How Does It Work?

After hours trading simply means trading stocks, options and derivatives when regular markets are closed. Using online brokers, investors can trade instruments based on news releases even when the relevant stock exchanges are closed.

Who Can Do After Hours Trading?

Where after hours trading once required massive amounts of capital, restricting access to big institutions and wealthy investors, technology improvements have allowed anyone with capital and the means to create a trading account to get involved.

Where Can I Do After Hours Trading?

After hours trading is available to traders all over the world, provided they have the means to open a trading account with a suitable broker. For UK traders, these can include AJBell YouInvest, FreeTrade and Revolut. Degiro is a popular after hours broker for EU customers and the US offers a huge range, including Marketwatch, Vanguard, WeBull, SS&C and Interactive Brokers.

When Can I Trade After Hours?

After hours trading is possible all the days of the week, with pre and post-market trading possible Monday through Friday. Certain brokers will also offer certain instruments, often index trackers, like the FTSE 100 or 250, on weekends. After hours trading is not 24/7, however, beginning and ending at specific opening and closing times, outside of which all trading halts. However, some brokers may offer instruments for trading on market holidays like New Year’s Eve.

What Are The Differences Between After Hours Trading Vs Pre-Market Trading Vs Day Trading?

After hours, or extended hours trading, is a general term for any trading outside of standard market hours. Within this, stock exchanges have specific times before and after closing, called pre-market trading and post-market trading. Day trading is the opposite, occurring within standard market hours and taking advantage of the high levels of liquidity available then.