You may have heard of day trading, in which you trade to turn a profit from the start of the day to the finish. but did you know that you can still trade even after the markets close? This is known as “after-hours trading”, and it comes with various different benefits compared to traditional day trading.
First things first, you need to decide which trading platform best suits your needs. You have a couple to choose from though, so you may be asking yourself: what are the best after-hours trading platforms? And how do you even try after-hours trading UK?
Well, my guide will name some of the best platforms for after-hours trading, as well as explain what exactly after-hours trading is, and some of the benefits and disadvantages.
Which platforms allow after-hours trading?
There are a couple of different trading platforms for you to choose from if you’re interested in after-hours trading. Each has its own set of benefits, and one may suit you more than another.
For example, if you’re looking to trade large volumes of shares, a broker with a lower rate of commission may better suit you. Or, if you are a less experienced investor, you may want to think about investing on a platform with adequate educational materials.
So, continue reading my comprehensive guide to discover which trading platform would best suit your experience and investment strategy.
Interactive Brokers offers a US-based trading platform that allows you to trade after-hours.
One of the great things about Interactive Brokers is its extremely cheap fee structure. When trading US shares after-hours, you will be charged a minimum of $0.005, up to a maximum of $1, for every share.
Better yet, when you use Interactive Brokers, you won’t face any withdrawal fees or inactivity fees, and they don’t ask for a minimum deposit.
Unfortunately, their desktop trading platform can get quite complicated at times, so if you’re a beginner at investing, you may be better off opening an account with a different provider.
However, they do offer several different research tools for you to use to analyse different shares, so this may help offset any confusion caused by the complex user interface.
IG is another UK-based trading platform that allows you to trade after-hours.
The platform has a huge selection of investment options for you to choose from, and even offers educational tools for you to better your investing knowledge.
When it comes to fees, IG gets cheaper with more use – the more trades you make in a month, the less commission you will typically pay. If you’ve made up to two trades in the previous month, you’ll typically pay £10 for every trade on US shares, and £8 for UK shares.
When you’ve made three or more trades in the previous month, however, you will typically pay nothing for US shares, or £3 for UK shares.
If you wanted to trade European shares, you’ll be looking at a flat 0.1% commission for every trade, regardless of how many trades you’ve made in the previous month.
You can even try your hand at forex trading with IG, though you will typically face a 0.5% fee on trades for doing so.
What exactly is after-hours trading?
As the name suggests, after-hours trading involves placing orders for shares outside the normal trading hours of a market.
All stock markets have their defined trading hours, and as you may have guessed, you usually can’t buy or sell shares when markets are closed. This is where after-hours trading comes in.
Historically, post-market trading was once limited to institutional investors, but widespread access to technology has made it possible for you to place orders outside market hours.
Investors can also trade pre-market which, you guessed it, allows you to buy and sell shares before markets open. Though when talking about after-hours trading, pre-market trading typically falls under this umbrella.
How does after-hours trading work?
There are some big differences between normal trading and after-hours trading.
Rather than placing your order directly with a stock exchange, your order is instead processed by an electronic communication network (ECN).
This ECN matches potential buyers and sellers, all without the use of a traditional stock market.
Since there are typically fewer investors trading after-hours, the markets will generally be more liquid and volatile, and there are usually fewer shares on offer.
This can have an impact on the price of shares during after-hours trading, so investors often use limit orders on shares they purchase. This is when you allocate a buy or sell price to a share and then, when the price is met, it will be automatically bought or sold.
Though the prices may differ slightly during after-hours, changes in prices for shares usually correlate to price changes when the market opens again. This is why you may see the price of a share change by a large value when markets first open.
For example, if a company released a healthy earnings report outside typical market hours, this would likely increase its share price during after-hours trading. In this case, you would expect buy orders to outweigh sell orders, which would in turn drive up the price.
However, if other investors later found that the earnings report wasn’t as healthy as they previously thought, this would result in sell orders outnumbering buy orders, thus driving the price down below the value it was trading for during market hours.
This increased volatility can have its benefits though, as it could allow you to get a good deal on shares. Of course, this is a double-edged sword, as you may also end up paying more for a share than you expected.
This is why limit orders are typically essential when trading after-hours.
What shares can I purchase after-hours?
It is essential to keep in mind that, while you can place orders for UK shares after-hours, the actual trade won’t take place until markets open again.
You can, however, still trade US shares after-hours. It is worth checking the extensive list of shares you can purchase after-hours, but some of these include:
As you can see, you can purchase many of the companies with the largest market capitalisations (market caps) in the world. Though again, you should double-check if the company you want to invest in can be traded after-hours before you attempt to make the trade.
What times are the various markets typically open?
As mentioned, after-hours trading takes place outside the typical market operating hours.
In the UK, the markets’ normal trading hours are from 8.30 am to 4.30 pm GMT. You should keep in mind that markets in the UK typically have a two-minute break between 12.00 and 12.02 pm GMT.
Meanwhile, US markets are open from 9.30 am to 4.00 pm EST, which equates to 2.30 pm to 9.00 pm GMT.
European markets tend to have similar trading hours, with slight variations. For example, markets in Germany and Sweden open from 9:00 am to 5:30 pm (7.00 am to 3.30 pm GMT), while markets in Switzerland open from 9.00 am to 5.20 pm (7.00 am to 3.20 pm GMT).
When can you trade after-hours?
You can’t officially trade UK shares after-hours – you can set up limits or stop-loss orders on UK shares on the London Stock Exchange outside market hours, but they typically won’t be processed until the markets open again.
Meanwhile, you can trade US shares after-hours, either on the Nasdaq or the New York Stock Exchange. For purchasing normal shares, you can do so during the after-hours trading period between 7.00 am and 5.30 pm EST (12.00 pm and 10.30 pm GMT.)
As for trading derivatives on US shares after-hours, such as spread betting or CFDs, you can do so between 4.00 am and 8.00 pm EST (9.00 am and 1.00 am GMT) Monday to Thursday, or 4.00 am to 5.00 pm EST (9.00 am to 10.00 pm GMT) on a Friday.
What is extended-hours trading?
Extended-hours trading is much like after-hours trading, though the term also encompasses pre-market trading. As the name suggests, this is when you trade shares or derivatives before the market opens.
Even though you can trade at any time during the extended-hours trading period, most investors still typically trade during regular trading hours. This is because most news that influences share prices occurs just before, or just after, markets are officially open.
However, if important news is released long before, or after, markets open, you may find that there is more trading volume during the extended-hours trading period.
The different ways to trade after-hours
Much like traditional day trading, there are several different ways you can try accessing the after-hours market.
What are these different methods for trading when the markets have closed? Well, continue reading my article to find out more.
Purchase shares directly
As you may have guessed, one of the most common ways to trade after-hours is to just purchase the share directly.
Of course, when you trade after-hours this way, you aren’t buying or selling the shares from traditional stock markets, you are instead trading them through the ECN.
Spread betting is a form of derivative trading that allows you to “bet” on how a company will perform.
When you place a “bet”, you stake a certain amount of money for every point a company rises or falls.
For example, if you staked £100 for every point of after-hours movement, you would gain £200 if the company moved two points in the direction you predicted.
However, if the company’s value moved in the opposite direction from how you predicted, you would lose £200.
Remember that this is potentially risky in after-hours trading as a result of the additional volatility in share values.
CFDs, or “contracts for difference”, are another form of derivative trading with some similarities to spread betting.
Unlike spread betting, however, you will instead get the difference in price from when you opened the contract.
For example, if you predict that a company’s value will rise after-hours, you could buy 20 CFDs. If the company’s share price rose by 20p, you would earn £400. Though if it fell by 20p, you would then lose £400.
You should keep in mind that spread betting and CFDs are extremely complex financial instruments. In fact, more than half of retail investor accounts lose money when trading derivatives.
Again, there may be additional risk involved here as the volatility of after-hour trades may increase the likelihood of your bet being wrong.
What are the risks involved with after-hours trading?
All investing carries risk, but it’s important to be aware that there are additional risks involved with after-hours trading that differ slightly from buying and selling shares during the normal trading session.
While these risks can be offset, it’s still vital you understand exactly how you could be affected, so continue reading to find out what these risks are.
As previously mentioned, you trade through an ECN when you conduct after-hours trading. This is because traditional markets aren’t open, so an external service is needed to match potential buyers to sellers.
When you trade normally through traditional markets, you typically have multiple sources for shares, and you always see the best price available.
However, when you trade after-hours, you are only able to access one ECN that your broker provides. Since you are only able to access shares from a single avenue, there is a risk that you won’t be exposed to the best available price.
There also tend to be far fewer participants in after-hours trading. While this does mean that there will be less competition to tangle with, it also means that there is lower liquidity in the market – that is, your ability to find buyers and sellers for certain investments is limited.
As a result of this, you may notice wider spreads when you trade, and there’s even a chance your order won’t be executed if there is no one to accept your trade.
Why would you want to trade after-hours?
As with most investment options, trading after-hours brings benefits as well as disadvantages.
So, keep reading to find out what these are, and if after-hours trading suits you.
The pros of trading after-hours
It can be more convenient
If you are busy with work or can’t find the time to buy and sell shares during normal trading hours, doing so after-hours could be far more convenient for you.
Volatility can offer competitive prices
While volatility can bring risks, you can also use it to your benefit. Rapid price swings give you the opportunity to buy shares in a company at a lower price than usual.
This works inversely too, as you may find you can sell shares for a higher price than you would during normal trading sessions.
It could allow you to get ahead of the competition
Not all financial news comes during market hours – for example, some companies may release earnings reports outside normal trading hours.
When you trade after-hours, there’s a chance you will be able to react quickly to the news before the trading day begins.
This means that you may be able to get ahead of the competition since more casual traders will typically wait until markets reopen to react to the news.
The cons of trading after-hours
There is a higher risk of volatility
As mentioned, there is typically more volatility when you trade outside normal trading hours, and while you can make this work to your advantage, it can also hamper you.
For example, when you go to sell stocks, you may end up selling them for less than expected. This is why stop limits are essential when trading after-hours – you don’t want to get caught out and end up losing money rapidly due to volatility.
There’s typically lower liquidity
Since trading volume is typically lower after-hours, this can result in lower liquidity.
This means you won’t be able to buy and sell different shares as easily as you could during normal market hours, which could result in more volatility.
You could face more competition
Typically, more casual investors tend not to get involved with after-hours trading. This means that your competition may be more experienced investors, who will likely be more knowledgeable when it comes to investing.
This puts them at an advantage compared to you if you are a more casual investor, and since there are typically fewer shares on offer after-hours, this can mean it’s difficult to overcome the competition.
After-hours trading UK FAQs
What is the best platform for after-hours trading?
The best trading platforms for after-hours trading all depend on how you plan on trading, and your experience levels.
If you are planning on trading large volumes of shares, you may want to consider a platform with less commission for every trade, or one that offers a lower commission the more trades you make in a month. For example, InteractiveBrokers has a relatively cheap fee structure, meaning you will save money the more you trade.
Or, if you are a less experienced investor, you may want to consider a trading platform that offers educational materials, such as IG.
What exactly is after-hours trading?
After-hours trading is the act of buying and selling shares or trading derivatives after the stock market closes.
Unlike trading during normal trading hours, after-hours trading is conducted through an electronic communications network, which pairs potential investors together.
You may find that after-hours trading can also be more volatile than trading during the day. This is because there is less volume of shares being traded, which can cause prices to fluctuate.
Will my after-hours order always be executed?
Since there are far fewer participants in after-hours trading, there’s a chance your order won’t be executed on the same day.
If this does happen, your order will be cancelled, and you will need to make a new order the following day. This is because an order is only valid during the after-hours session it was made.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested.
Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
CFDs are complex financial instruments and more than half of retail investor accounts lose money when trading CFDs. Please make sure that you know these risks before you start trading and that you’re aware there’s a high chance of losing money rapidly on your investment.