Pre-market, after hours and late trading explained
The US stock markets operate between 9.30 and 16:00, Monday until Friday. It is during these hours that anyone can place a trade through their stock broker. Of course, with the introduction of online trading, even Forex brokers offer access to the stock market now.
There are some brokers however, that offer a trading environment before the markets open at 9.30. Clients that do this are limited to rules and regulations but in general, they are free to trade from around 7am until a few minutes before the bell. On the flip side, some brokers also offer the ability to trade after 16:00. The same restrictions and limits apply as to pre-market trading but again, anyone can trade.
The reason why these ‘out of hours’ services are provided is because a lot happens outside of normal trading hours. Some companies release their annual reports and in order to profit from that extra hours are provided for trading. If the extra trading hours were not provided there would be a lot of trading opportunities missed here.
The only way to receive a price for an asset is though ECN networks but there is a problem. Because this is happening outside of ‘office hours’ it can be very hard to receive a fair price. For instance, the price paid for a stock outside of trading hours can be much more expensive compared to the price on other networks. The same applies to the spread. It could be a lot wider simply because there are not enough players in the market to create a demand for it. The more players there are the lower the spread; this applies to majority of Forex brokers. Liquidity therefore suffers in this scenario too. The lack of players in the market simply repels the notion of placing a trade. Simply put, trading out of normal trading hours can be quite expensive and not very exciting.
With this in mind, we feel it is important to know that this type of trading; whilst it is perfectly accepted around the globe; has been proven to be part of a global scam at one point. A number of companies who trade mutual funds have been taken to court due to unfair trading. As mutual funds are only priced once per day, there have been instances where large trading organisations know the price of mutual fund the next day – before anyone else. This has given them an unfair position and a great deal of advantage over traders who do not have access to this information. It is not surprising why inside trading has now become a major crime.