Before-Hours and After-Hours Trading

By definition trades executed before normal trading hours are known as before-hours trades and trades executed after normal trading hours are known as after-hours trades. Often these sessions are called off-hours trading and the most common practice followed during the session is crossing – the matching of buy and sell orders.

There are mainly three type of off-hours trading practices, which are,

1. Exchange after hours market – This is an hour (or half or quarter hour) long trading session where buy and sell orders are executed at market closing price. For NYSE this crossing session last from 4.00 pm to 5 pm.
2. Foreign exchanges after hours market – Many foreign stock exchanges trade NYSE or similar US exchange listed stocks.
3. ECN after hours market – this is so far the most prominent after hours market regulated by Electronic Communication Networks (ECNs) which allow institutional and individual investors to trade stocks; often with limit orders.

Traders can participate in after-hours trading though their brokers who offer access to one or more ECN. The trading hours, ECN charges and liquidity differ with ECNs. Most brokers have restrictions on order types. Off-hours trading help traders to profit from news and reviews released after the normal trading hours. But before and after hours trading are not as much as liquid as normal hours trading; and usually ECNs do not have common reporting systems and thus prices for same instrument can vary with different ECNs, providing traders an opportunity to profit from arbitrage.

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