The SEC’s Office of Investor Education and Advocacy is issuing this Investor Bulletin to help educate investors about extended-hours trading for stocks. Extended-hours trading, refers to trading that occurs outside of regular trading hours. Regular trading hours for stocks traded on exchanges and certain other markets are from 9:30 a.m. to 4:00 p.m. Eastern Time. Extended-hours trading sessions may occur before or after regular trading hours. The duration of extended-hours trading sessions varies between markets and trading venues. Investors should contact their brokerage firms to determine if and when extended-hours trading sessions are available.
Overview of Extended-Hours Trading
Investors should be aware that the rules governing the various markets and venues that conduct extended-hours trading vary and may differ significantly from rules that apply during regular trading hours. Differences may include the types of orders accepted for extended-hours trading, the securities that are available to trade, and the presence or absence of market makers, among others. Investors should contact their brokerage firms to determine the specific rules that apply.
Extended-hours trading may take place on alternative trading systems (ATSs) (operated by broker-dealers), exchanges and or other trading centers. Not all markets available during regular trading hours may be available during extended-hours trading.
Extended-Hours Trading Risks
While extended-hours trading may present investment opportunities, investors should consider the following risks before engaging in extended-hours trading:
- Lack of Liquidity. Liquidity refers to the existence of buyers and sellers who are willing to trade with incoming orders and the degree of price competition among buyers and sellers. A lack of liquidity can affect an investor’s ability to quickly buy or sell stock with a minimal effect on the stock’s price. During regular trading hours, buyers and sellers of most stocks rigorously compete on prices to attract trading interest. However, during extended-hours trading there generally is less trading interest and therefore less price competition for most stocks, which may raise trading costs, increase uncertainty with respect to prevailing prices, or make it more difficult to execute trades. There may be no market makers actively making markets in most or all stocks. In fact, some stocks may not trade at all during extended-hours trading.
- Price Volatility. For stocks with limited trading activity, investors may find greater price fluctuations than they typically would see during regular trading hours. In addition, certain existing mechanisms that address volatility in specific stocks or in the market as a whole may be limited or not available during extended-hours trading.
- Uncertain Prices. The prices of some stocks traded during extended-hours trading may not reflect the prices of those stocks during regular hours, either at the end of the regular trading session or upon the opening of regular trading the next business day.
- Unlinked markets. Extended-hours trading systems are not linked together. As a result, depending on the extended-hours trading system or the time of day, the price of a stock displayed on one trading system may not reflect the price of the same stock displayed on another trading system operating at the same time. These price differences may result in you receiving an inferior price on an extended-hours stock purchase or sale.
- News Announcements. Companies may announce important news or financial information outside of regular trading hours. These announcements, combined with other extended-hours trading risks, may lead to significant price changes in these companies’ stocks during extended hours trading.
- Larger Quote Spreads. The reduced level of trading interest in extended-hours trading generally results in wider spreads between the bid and ask prices for a stock or no quotes at all. As a result, investors may find it more difficult to get their orders executed or to get as favorable a price as they could have during regular trading hours.
- Order Handling. Some rules that apply to the handling of orders during regular trading hours do not apply to orders in extended-hours trading. Investors should check with their brokerage firms to determine how orders placed during extended-hours trading are handled, including the markets to which the firm routes orders and whether or not the firm seeks to route each order to the best displayed price. In addition, consolidated quote and trade data for a stock that is available during regular trading hours may not be readily available during extended-hours trading.
- Requirement of Limit Orders. With respect to extended-hours trading, many brokerage firms currently accept only limit orders in order to protect investors from unexpectedly bad prices. Limit orders can be executed only at the limit price or better. If the market moves away from the limit price, the order will not be executed.
- Order Time Limit. Investors should check with their brokerage firms to see whether orders not executed during extended-hours trading will be cancelled or whether they will be automatically entered when regular trading hours begin. Similarly, investors should also check with their brokerage firms to see if orders placed during regular trading hours will carry over to extended-hours trading.
- Competition with Professional Traders. Investors should note that many of the extended-hours traders are professional traders who, by nature of their profession, generally have access to more information than individual investors.
For additional information relating to the types of orders investors may use to buy or sell stock, please read our investor bulletin “Understanding Order Types.”
For additional investor educational information, see the SEC’s website for individual investors, Investor.gov.