After the major U.S. stock exchanges close at 4 p.m. Eastern Time, after-hours trading begins.
The after-hours trading activity can last until 8 p.m., though volume usually drops down considerably earlier.
Electronic communication networks are used to conduct after-hours trading (ECNs).
If news breaks after the stock exchange closes, dealers and investors can use after-hours trading.
In some situations, such as when an earnings report is released, the news may motivate an investor to purchase or sell a stock.
The volume for a stock may jump when the news is first released, but it usually thins out as the session progresses.
By 6 p.m., the amount of volume has often decreased dramatically.
Trading in low-volume stocks after hours carries a significant risk.
In after-hours trading sessions, not only does volume, but also pricing, come at a premium.
In the after-hours market, it is fairly uncommon for spreads to be wide.
The difference between the bid and ask prices is known as the spread.
The gap may be substantially greater than during a normal trading session due to the lower number of shares traded.
If the absence of liquidity and prices weren't enough to make after-hours trading dangerous, the lack of participants makes it much more dangerous.
In some situations, regardless of the news or event, certain investors or institutions may choose not to participate in after-hours trading.
This means that a stock could fall severely during after-hours trading only to climb once the regular trading session returns the next day at 9:30 a.m., assuming that many large institutional investors have a different view of the price movement during the after-hours trading session.
Because after-hours trading has low volume and wide spreads, it is considerably easier to move prices up or lower, requiring fewer shares to have a significant influence.
Because after-hours trading can have a big impact on a stock's price, putting a limit order on any shares you want to purchase or sell outside of regular trading hours is a good idea.