After hours trading: Here’s how it works on the ASX & internationally

Nick Sundich Nick Sundich, October 12, 2023

The ASX may be ‘officially’ open for only 6 hours a day, but after hours trading extends it significantly. In this article we look at the phenomenon generally and how it works both on the ASX and internationally.

 

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What is after hours trading?

After hours trading, also known as extended hours trading, refers to the buying and selling of stocks outside of regular market hours. These are times when the stock markets are officially closed for trading. While regular market hours in the US typically run from 9:30 am to 4 pm EST on weekdays, after-hours trading can take place before or after these times.

Turning to Australia, it doesn’t quite work in the same way as in the US. Between 4.10pm and 5pm, there is the ‘Adjust‘ phase. There is no trading allowed, but brokers are allowed to amend orders or cancel unwanted orders. This is nonetheless a distinct phase from the ‘Close’ phase that kicks in formally at 7pm when even this is not allowed to take place.

Why do investors resort to after-hours trading?

There are several reasons why investors may choose to participate in after hours trading. One of the main reasons is that it allows them to react quickly to market news or events that occur outside of regular market hours. For example, if a company releases earnings reports after the markets have closed for the day, investors can immediately react by buying or selling stocks in after-hours trading.

Another reason is that after hours trading allows investors to take advantage of potential price movements that may occur overnight or over the weekend. This can be especially beneficial for those looking to make quick trades and capitalise on short-term market fluctuations.

From the perspective of investors in Australia wanting to access the US market, timing is very inconvenient with the market opening between 11.30pm and 1.30am dependant on the time of year and closing between 6am and 8am Tuesday to Saturday.

It certainly isn’t as convenient as markets in Asia-Pacific or in New Zealand that more closely align with our own time zone. After hours trading theoretically allows them to trade during Australian business hours.

The Risks and limitations of after-hours trading

While after hours trading may seem like an attractive option, it does come with its own set of risks and limitations. One major risk is the potential for increased volatility and lower liquidity during this phase. This means that prices can fluctuate more rapidly, and there may be fewer buyers and sellers in the market, making it more difficult to execute trades.

In addition, after hours trading is only available to certain investors. Retail investors, typically do not have access to after-hours trading. This is because after-hours trading is usually reserved for institutional and high-net-worth investors who have the resources and expertise to navigate the risks and complexities of after-hours trading.

Conclusion

After-hours trading can be a useful tool for some investors, allowing them to react quickly to market news and potentially benefit from overnight price movements. However, it is important for investors to understand the risks and limitations of after-hours trading before participating in it.

Investors should also be aware that after-hours trading is not regulated in the same way as regular market hours, and may involve additional fees or different trading rules. These may different from exchange to exchange.

As with any type of trading, careful research and consideration should be done before making any investment decisions. So, while after-hours trading can provide opportunities, it is not a suitable option for all investors and should be approached with caution.

 

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