Can someone explain how pre-market hours and after hours trading works?

Like take a look at this list

http://www.nasdaq.com/extended-trading/premarket-…

how is there trading going on before the market is even open? Could someone explain it to me like I'm a four year old?

 

Lots of brokers and private ECNs offer a market in shares before the NASDAQ or NYSE open. The trades can be executed in these markets before the big boys open up, but the quotes need to be reported to the relevant exchanges.

Example: I am a mutual fund and call up Goldman at 7:30am and say "Hey - I need to be out of position X before the market opens this morning." Goldman says "Ok - here's a price we can give you for X." We make the trade. X stock is listed on the NASDAQ, so Goldman has to report the executed price to NASDAQ who will run this in their pre-market trading quotes.

 
Boothorbust:
Lots of brokers and private ECNs offer a market in shares before the NASDAQ or NYSE open. The trades can be executed in these markets before the big boys open up, but the quotes need to be reported to the relevant exchanges.

Example: I am a mutual fund and call up Goldman at 7:30am and say "Hey - I need to be out of position X before the market opens this morning." Goldman says "Ok - here's a price we can give you for X." We make the trade. X stock is listed on the NASDAQ, so Goldman has to report the executed price to NASDAQ who will run this in their pre-market trading quotes.

this

 

I used to trade in the pre-market (8am untill 9:30), but the order depth wasn't all that (unless it was BAC, F, C, SIRI, etc.) I didn't report the trades to NYSE or NASDAQ, since the market is open to build order depth and give an indication of opening trades.

No big deal, just a hassel due to no algo trading in the pre- and aftermarket.

Edit: If a client wanted to get out of a position after market close, I'd have to talk to our market maker desk and get the green light (he sets the price, usually a VWAP OTD or closing price.Whichever is lowest) and I'd report it to the exchange.

CNBC sucks "This financial crisis is worse than a divorce. I've lost all my money, but the wife is still here." - Client after getting blown up
 

i would HIGHLY suggest you open a retirement account at TD Ameritrade, and use thinkorswim to watch the futures markets (its free) just to get an idea of how the markets move (/ES, /ZN, /CL, /GC are a good set of futures tickers to get you started - S&P 500 futures, 10yr US Treasury futures, Crude oil, gold). At the least, try paper trading (not using real $$...its pretend, but for a wannabe trader its the best game you can play, and the price quotes are both free and real).

 

It will explain everything. But, there is an electronic system that matches up buys and sells as much as it is able and there are limits to what can be done after hours.

--There are stupid questions, so think first.
 

by no means am i an expert, but i believe the after hours trading is used to facilitate large transactions made by the aforementioned entities; additionally, they include mutual funds, pension funds, etc. its my understanding that they utilize those hours to make huge transactions that could potentially affect the open market price during conventional trading hours.

any insight from those that might know better?

"The trouble with our liberal friends is not that they're ignorant, it's just that they know so much that isn't so." - Ronald Reagan
 
transatlantic:
brick:
A gallon of milk's price doesn't change much in the same day.

That still doesn't explain why the market can't stay open 24/7.

I think he meant it to explain why work hours are longer in finance than at grocery stores - things are always changing, and changing rapidly.

  • Capt K
- Capt K - "Prestige is like a powerful magnet that warps even your beliefs about what you enjoy. If you want to make ambitious people waste their time on errands, bait the hook with prestige." - Paul Graham
 

Uh? OK, yeah, everyone knows that. Which is why brick's comment wasn't very helpful.

By the way, I'd still really like to know why we don't just have 24/7 markets... the only rationale I can think of is to say that we already have 24/7 markets, kicking off the day in Asia, handing over to London, then to the US. But even so, why not just keep every exchange open 24/7?

 

It's probably risky to have all markets open 24/7. I'm sure someone can expand on this point, and I know there's some truth in it somewhere.

Also, the market closing probably gives everything time to settle down. I suppose having 24/7 markets and constant trading could result in price instability?

I don't know, I'm just throwing stuff out there, but let's keep this debate going..

 

Here's another thought - it may be a function of convention. In older days, before electronic trade clearing, etc, I'm sure the markets needed a break at night to settle accounts, clean the trading floor, etc and prepare for the next trading day.

Is it possible that our markets open and close when they do only because that's the way it's always been done?

  • Capt K
- Capt K - "Prestige is like a powerful magnet that warps even your beliefs about what you enjoy. If you want to make ambitious people waste their time on errands, bait the hook with prestige." - Paul Graham
 

Transatlantic, are you really advocating equity market be open 24/7? Do you realize how much burden traders already have? While we have the ABILITY to have a 24/7 market that doesnt mean its right. Think about it the market is a business and business' have hours. I mean index futures trade nearly 24 hours a day.

"Oh - the ladies ever tell you that you look like a fucking optical illusion?"

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 
trade4size:
Transatlantic, are you really advocating equity market be open 24/7? Do you realize how much burden traders already have? While we have the ABILITY to have a 24/7 market that doesnt mean its right. Think about it the market is a business and business' have hours. I mean index futures trade nearly 24 hours a day.

I'm not saying anything about how long traders would need to work. Instead, I'm trying to find out why markets don't open up 24/7. Presumably, if markets were open 24/7, there would be two or more shifts of traders, and the night shift would probably be small and wouldn't do very much work. (So 24/7 trading could actually reduce trader workload... but I don't know much about trading as I'm in M&A.)

The fact that a lot of after hours trading goes on clearly shows that demand exists for markets to stay open longer than is currently the case. Almost any other business would stay open longer to accommodate this demand. Why don't exchanges stay open longer? Answers suggested so far include:

  • huge transactions could potentially affect the open market price during conventional trading hours
  • we already have 24/7 markets, kicking off the day in Asia, handing over to London, then to the US
  • market closing probably gives everything time to settle down
  • having 24/7 markets and constant trading could result in price instability
  • that's the way it's always been done
 

The market, when open, operates via different traders working for themselves and their clients standing around at stations with a specialist keeping an orderly market. In after hours trading an electronic system matches up big orders, eventually it could be made to operate like a person, but it doesn't and doesn't have enough information to operate that way.

Anyway, the incremental benefit to more time trading is negligible. The fourth market operates at all times, so people trading in truly big amounts will always be able to trade at any time and price they feel. Jane Doe dentist doesn't need to be able to trade at 2 am, in fact she probably can't because she is buying odd-lots.

--There are stupid questions, so think first.
 

Not all stocks use a specialist system. NYSE and AMEX stocks use a specialist system, and even they kind of use a hybrid electronic system. NASDAQ stocks do not use a specialist, they trade Over the counter via market markers.

"Oh - the ladies ever tell you that you look like a fucking optical illusion?"

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 

PowerMonkey, could you please stop telling me/us to take the Series 7. I'm not a trader (or dealer or broker or whatever), I don't intend to become a trader, I'm not employed in the United States, and I don't see why I should have to study for several days and take a six-hour exam to get an answer to what should be a relatively simple question.

Also, I don't buy into your explanation involving "specialists keeping an orderly market", because as trade4size says, this might apply to NYSE/AMEX, but it doesn't to NASDAQ. So why not keep NASDAQ open 24/7? Well, here I am inclined to agree with PowerMonkey that "the incremental benefit to more time trading is negligible". If it were sufficiently beneficial then the exchanges' customers would have already gotten the exchanges to remain open longer.

 

Im sitting here in class and doing more posting than listening about autocorrelations in errors.

In general from my experience with equity traders is, the market closes and they get ready to go home. This allows the dust to settle and prepare for the next day. Also one thing that hasnt been considered is the impact of significant news. For example earnings and a large number of economic reports are issued outside of market hours. Im just going to stop my argument here. I dont think equities will ever see a true 24 hour market. Given that index futures already nearly trade 24 hours a day and there is very little activity relative to when the market is open this shows there simply is less demand for this.

I really need to stop ranting on wso.

"Oh - the ladies ever tell you that you look like a fucking optical illusion?"

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 

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"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
 

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