Many simply trade for the day, ending their buying and selling and speculating activities when the final bell rings. However, there are those who work after the markets close.
After-hours trading offers many advantages and opportunities, and there is a real appetite for waiting for day traders to finish.
If you want to know how to trade after hours, keep reading. This guide explains how after-hours trading in the UK works and when to do it, as well as strategies for trading after-hours stocks.
What is After Hours Trading?
As its name suggests, after-hours trading consists of placing orders for stocks outside normal daily trading hours. Stock markets around the world are open for daily trading, also called main session trading, during their designated hours. These times are clearly marked and traders know when the session starts and ends.
However, trading of stocks and exchange-traded funds (ETFs) is not limited to the opening and closing hours of the markets. After-hours trading occurs after normal business hours have ended.
Traditionally, buying shares after trading hours was only available to institutional investors. In 1999, individual investors were able to trade outside of trading hours. Then, with the evolution of technology, after-hours trading became more accessible to anyone who wanted to try their luck after the markets closed.
How does after-hours trading work?
This type of trading is different from the main session trading. When trading after hours, instead of placing the order through the stock exchange, it is done through Electronic Communication Networks (ECN). These are digital networks that allow buyers and sellers to communicate with each other to trade securities without the intervention of third-party market makers, which implies day-to-day trading.
Since there are usually not as many traders, the markets tend to be more volatile and liquid. Also, there are not that many shares on offer and this, in turn, affects the price of the shares available at that time of the day.
To balance this situation, investors limit the orders of the shares they buy. Limit orders consist of traders specifying a price at which to buy or sell a stock. Once this price is met, it will automatically be bought or sold.
ECN matches orders based on these limit prices.
To start trading after hours, traders wait for the end of the main session of their preferred index. In the UK, official trading hours for the FTSE 100 Index are from 08:00 to 16:30 GMT, Monday to Friday, and futures trading is open from 01:00 to 21:00, Monday to Friday.
Outside of trading hours, traders will connect to their brokerage account that offers trading functionality through their platforms, such as those offered by FXCM. At FXCM, you can participate in after-hours trading of the FTSE 100 between 00:00 and 20:00 every day.
From there you can select the stock you want to buy and place an order. Your broker submits your order to the ECN it uses, and the ECN tries to match your order with the corresponding buy or sell order on the network.
Trading after hours. when can you do it?
After-hours stock purchase is possible in three different sessions. These.
Preliminary market negotiations
While we’ve talked a lot about the closing bell, it’s possible to trade hours after the main session begins. This is known as pre-market trading and it allows traders to access markets hours before the market opens.
This can be particularly useful if UK traders are looking at global shares and indices, so if you prefer to trade US stock markets then you should stick to GMT. For example, in the case of NASDAQ, after-hours trading is based on Eastern Standard Time. In this case, the trading sessions before and after the market open are from 04:00 to 09:30 and from 16:00 to 20:00 EST, ie from 09:00 to 14:30 and 21. from 00:00 to 01:00. 00 GMT.
This means that while 4am is early in the US, UK traders operate at a reasonable hour.
Post Market Trading:
After-market trading offers traders the opportunity to trade after the end of the main session. Again, this provides access to global markets at times that may be beneficial to those based in the UK.
Weekend
Weekend trading allows you to take a position on Saturday or Sunday. Traders who decide to trade on the weekend tend to use this time to hedge positions during the week by placing themselves in the same market over the weekend.
Why work after hours?
There are various reasons to trade after hours. The bottom line is that if something happens outside of normal trading hours that can affect a company’s share price, it can be beneficial for those willing to buy or sell at the right time.
For example, if a UK-based company is accepted and the announcement comes at 5pm, half an hour after the FTSE 100 main session ends, the share price will be affected. Meanwhile, the price of shares will decrease. In this case, investors may try to trade after hours by selling their shares as soon as possible.
Timing is also the second reason why traders trade after hours. In this case, investors react to news that often occurs before or after normal trading hours, such as company earnings reports. Prices can change dramatically after an earnings release or a change in an organization’s top management. In order to buy or sell as quickly as possible based on the news, you need to place a trade order after business hours.
Also, on a practical level, it may make sense to trade global markets after hours, simply because the anti-social hours of the country where you are trading before or after the market are daylight hours in the country where the investor is based. For example, US markets open at 4am ET, which is 9am in the UK.
What to Know When Trading After Hours
There are risks and limitations you should be aware of before trying your hand at after hours.
limitations
The key thing to remember is that if you place orders for UK stocks after hours, the trade will not take place until the markets reopen. If you are trading international markets, you need to check that you can trade them after hours. Even if you can trade domestically, you should check if the company you want to invest in can trade after hours.
Additionally, investors can only use limit orders to buy or sell shares. This can be limiting for those who are used to trading in the main session.
the risks
Financial risks to be aware of include:
Your broker may charge you additional fees for trading after hours. This can get expensive over time, so check if your broker charges.
Your broker only uses one ECN. This means you will only see prices available on that network. This is different from the main session, which offers prices from different locations.
Liquidity of available securities is limited. This is because there are fewer participants after hours.
If an event or something newsworthy happens, everyone will try to react at once, pushing the trading price in different directions before it stabilizes. This makes it difficult for traders to limit their orders, and there is a chance that night trading will generally perform better.
How to trade after hours
If you want to try trading after hours, you can do it in several ways. The options you try will depend on how comfortable you are with trading in the main session and how willing you are to make the jump to after-hours trading.
Choose your method
There are various trading modes for those who want to try the markets after hours.
CFDs, or contracts for difference, mean that you do not own the asset you are trading. In this case, you bet on the behavior of a company in the markets and then trade the difference between the opening and closing prices of commodities, currencies or stock indices.
Some providers allow you to trade CFDs after hours, but you cannot check how the prices stack up, which adds risk to this method, as the price can be distorted.
Buying shares consists of owning a part of a company, and the performance of that part in the market depends on the company’s performance. This is probably the most popular option for after-hours traders.
Select your market
In addition to the various methods available, you can penetrate the market you want to trade outside of normal business hours. They include:
The Forex market is available 24 hours a day, excluding weekends. This makes it an attractive market for those who trade currencies outside of the main session, as trading is possible at that time and some markets are not as volatile outside of trading hours.
Commodities are investments in securities, usually commodities such as gold, grains, and silver. Again, commodity markets operate 24 hours a day, five days a week. This means that investors can react to any changes or news that occurs before or after the day’s session.
In this case, indices or index futures allow traders to buy or sell a financial index contract today that will settle at a future date. Traders speculate on where the price of an index will go, and one goes long and the other goes short. This means that one wins and the other loses. Trading indices is possible almost 24/7, but can become volatile after hours.
After Hours Trading with FXCM
You don’t need a lot of capital to try your hand at after-hours. In fact, our demo account allows you to trade real markets for free.
Next, decide when you want to try trading on delayed hours and which markets you will try first. From there, you can open an FXCM account and use our platform to connect with other traders in the markets. Our wide variety of educational materials, including free daily market webinars, can also guide you through the various markets you’re exploring.
Get started as an after-hours salesperson today. Contact our support department for more information.