Your guide to out-of-hours trading

Many stick to day trading, ending their buying, selling and speculating once the final bell has rung. However, there are those who trade after the markets close.

There are plenty of benefits and opportunities that come with trading out of hours, and there is a real appetite for holding off until the day traders have finished up.

If you want to know how to trade out of hours, read on. This guide takes you through everything from how out-of-hours trading works in the UK and when to do it, to strategies on how to trade shares after the closing bell.

What is out-of-hours trading?

As its name implies, out-of-hours trading is where orders are placed for shares outside of the normal day-trading times. Stock markets around the world are open for day trading – also referred to as main-session trading – within their defined hours. These hours are clearly set out and traders know when the session begins and ends.

However, the buying and selling of stocks and exchange-traded funds (ETFs) isn't restricted to when the markets open and close. Out-of-hours stock trading takes place after normal business hours are over.

Buying shares out of trading hours was traditionally only available to institutional investors. In 1999, it became possible for individual retail investors to also trade after hours. Then, with changing technology, out-of-hours trading became more accessible for anyone who wanted to try their luck after the markets closed.

How does out-of-hours trading work?

This type of trading is different to main-session trading. When trading out of hours, instead of placing your order through a stock exchange, it's done through electronic communication networks (ECNs). These are digital networks that allow buyers and sellers to communicate with each other, trading securities without the third-party involvement from market-makers that day trading brings.

As there aren't usually as many traders operating after hours, the markets tend to be more volatile and liquid. Additionally, there aren't as many shares on offer and this, in turn, affects the price of the shares which are available at that time of day.

To balance this out, investors limit orders on the shares that they buy. Limiting prices is where traders assign a price at which to buy or sell a share. When this price is met, it will automatically be bought or sold.

The ECN matches orders based on these limit prices.

To begin trading out of hours, traders wait until the main session across their preferred index has come to an end. In the UK, the FTSE 100 index's official trading hours are between 08:00 and 16:30 GMT, Monday to Friday, with futures trading open between 01:00 and 21:00 on Monday to Friday.

Out-of-hours traders will then log into their brokerage account that offers functionality trading across its platforms, such as the one offered by FXCM. On FXCM, you can participate in FTSE 100 out-of-hours trading every day between 00:00 and 20:00.

From there, you can select the stock that you would like to buy and place a limit order. Your broker sends your order to the ECN that it uses and the ECN attempts to match your order to a corresponding buy or sell order on the network.

Trading out of hours: when can you do it?

Buying shares out of hours is possible across three different sessions. These are:

Pre-market trading

While we've talked a lot about the closing bell, it is possible to trade out of hours before the main session begins. This is known as pre-market trading, and it gives traders the opportunity to access the markets hours before they open.

This can be especially useful if traders in the UK are looking at global exchanges and indexes so, if you would prefer to try trading across the US stock markets, you will need to adjust for GMT. For instance, for NASDAQ, out-of-hours trading is based on Eastern Standard Time. Here, pre-market and after-hours trading sessions run from 04:00 to 09:30 and 16:00 to 20:00 EST, which is 09:00 to 14:30 and 21:00 to 01:00 GMT.

This means that, while 4am in the US is early, traders in the UK are operating at a reasonable hour.

Post-market trading

Post-market trading gives traders the chance to trade after the main session closes. Again, this gives access to global markets at times that could work well for those based in the UK.

Weekend trading

Weekend trading gives you the opportunity to take a position on a Saturday or Sunday. Traders who decide to operate over the weekend tend to use this time to hedge weekday positions by placing themselves over the weekend on the same market.

Why trade out of hours?

There are different reasons to trade out of hours. The main one is that, if something happens outside of the regular trading hours that could affect a company's stock price, it can be beneficial for those who are poised to buy or sell at just the right moment.

For example, if a UK-based company were to be placed into administration and the announcement came at 5pm, that's half an hour after the FTSE 100's main session has closed. The price of stock, meanwhile, would be driven down. In this case, investors might try after-hours trading where they could sell their stocks in that company as quickly as possible.

Timing is also the driving factor behind the second reason why traders operate out of hours. Here, investors to react to news that typically takes place before or after normal trading hours, such as company earnings reports. Prices can shift dramatically based on an earnings release or a change in senior management at an organisation. To buy or sell as soon as possible based on the news, you'll need to place an order for after-hours trading.

Also, on a practical level, it can make sense to trade after hours on the global markets simply because the antisocial hours in the country where pre- or post-market trading is taking place are daytime hours in the country in which the investor is based. For instance, the US markets open as early as 4am Eastern Time, which is 9am in the UK.

What to know when trading out of hours

There are risks and limitations of which to be aware before trying your luck with out-of-hours trading.

Limitations

The main thing to keep in mind is that, if you place orders for UK shares out of hours, the trade won't take place until markets open again. If you're trading on global markets, you'll need to check that you can trade there after hours. Even if you can trade in the country, you'll then need to check if the company in which you want to invest can be traded out of hours.

Also, investors can only use limit orders to buy or sell shares. This can be restrictive for those used to trading in the main session.

Risks

Financial risks of which to be aware include:

• Fees

Your broker may charge extra fees for after-hours trading. This can prove expensive over time, so check to see if your broker charges.

• Pricing

Only one ECN is used by your broker. This means that you will only see the prices available across that network. This differs to the main session, which offers prices from several venues.

• Liquidity

There's limited liquidity across the stocks that are available. This is because there are fewer participants operating after hours.

• Volatility

If an event or something newsworthy has happened, everyone will try to react at once, driving the trading price in different directions before it can stabilise. This makes it difficult for traders to limit their order and there's a chance that trading the next day could work out better overall.

How to trade out of hours

If you want to try your hand at trading out of hours, there are different approaches that you can take. The options that you try will depend on how comfortable you are with operating in the main session and how ready you feel to take the leap into out-of-hours trading.

Select your method

There are different trading methods available to those seeking to try the markets after hours.

• CFDs

CFDs - or contracts for difference - mean that you don't own the asset on which you're trading. Here, you're betting on how a company will perform in the markets and you then exchange the difference between the opening and closing price of commodities, currencies or stock indices.

Some providers allow trading on CFDs after hours but you can't check how the prices tally, which adds risk to this method as the price could be distorted.

• Buying shares

Buying shares is where you effectively own piece of a company and how your piece performs on the market depends on how well the company is doing. This is probably the most common choice for traders operating out of hours.

Choose your market

As well as the different methods that are available, you can drill down into the market in which you want to trade outside the usual hours. These include:

• Forex

The forex market is available 24 hours a day, excluding weekends. This makes it an attractive market for those who trade currencies outside of the main session as it's likely that it will be possible to make trades at this time and some markets aren't as volatile outside of trading hours.

• Commodities

Commodities are investments in stocks that are usually for raw materials, such as gold, grain and silver. Again, the commodities markets operate 24 hours a day, five days a week. This means that investors can react to any changes or news that comes in before or after the day session.

• Indices

Here, indices – or index futures – is where traders to buy or sell a contract from a financial index today that will be settled at a future date. Traders speculate about where the price of an index will go and one person will go long, the other short. This means that one person wins and the other loses out. Trading indices is possible almost 24/7 but it can become volatile after hours.

Trading out of hours with FXCM

To try your hand at out-of-hours trading, you don't need to have a huge amount of capital. In fact, our demo account lets you practice trading the real markets for free.

Next, decide when you'd like to try after-hours trading and the markets in which you'll attempt it first. From there, you can open an FXCM account and use our platform to join other traders in the markets. Our huge range of educational materials, including free daily market webinars, can also guide you through the different markets that you're exploring.

Get started as an out-of-hours trader today. For more information, check out our support section.