Market History(trading)

Until 1999, after-hours trading in the U.S. was mostly restricted to big-block trading among professionals and institutions. Much of this sort of trading was supported by electronic trading networks (ECNs). One of the oldest and best known ECN is Instinet, a network operated by Reuters that helps buyers meet sellers (there's no physical exchange where someone like a specialist works). Another is Island ECN, a relatively new network that (interestingly) has applied to the SEC to be a new stock exchange. With the advent of these ECNs where trades can take place at any hour of any day, time and place have taken on a reduced meaning.

Trading outside these regular hours is not a phenomenon that started in the past 5 years, but it has generally been limited to high net-worth investors and institutions, such as mutual funds. The emergence of private trading systems, known as electronic communication networks, or ECN, that facilitate extended hours trading has allowed individual investors to participate in extended-hours trading.

Extended hours trading on a day with a session that is not interfered with is from 4 a.m. - 9:30 and 3:59 - 8 p.m. EST.

Anyhow, until summer 1999, individual investors once could only purchase and sell stocks during the regular business hours of major stock exchanges. In the United States stock market regular business hours is typically defined as 9:30 AM – 4:00 PM.

Extended-hours trading's rise to non-institutional investors

Trading before and after traditional exchange hours became available in the 1990s for major institutional investors and high-net worth individuals. And it was only natural that some investors clamored for equal access to what the professionals had. Perhaps individuals felt that they would be able to pick up bargins in the after-hours trading as news announcements filter out and before stocks reopen on the following day. While that is highly unlikely (prices fluctuate after hours just as they do during the regular trading day), their wishes for equal access have been granted.

The rise of online investing in the late 1990’s led to demand from a wider group of people who invest for “extended-hours” trading.

Extended hours trading and Electronic communication networks

Extended hours trading works because electronic communication networks do not operate during the same hours or even under the same rules as the traditional markets. Most electronic communication networks are associated with online brokerage firms and have their own rules. Some electronic communication networks accept only "limit orders" under which extended hours traders specify a price at which extended hours traders want to buy stocks or sell stocks. If the electronic communication networks can make a match with another investor, extended hours trader's trade is executed. If not, the trade may be posted to the broker limit order book or if the electronic communication networks has links to other market centers (exchanges, market makers or other brokers) and those centers are actively participating in the extended-hours session, the order could be routed to that alternate market center for execution. Some electronic communication networks now permit "market orders" under which extended hours traders simply indicate that extended hours traders want to buy or sell a stock. However, the risks involved in Extended-hours trading make it a good idea to only use limit orders. One major difference between regular trading and extended-hours trading is how much of the marketplace extended hours traders can see when extended hours traders place their order. Some brokers limit (or even bar) extended hours trader's ability to see quotes on other networks and will only post extended hours trader's order to the electronic communication network extended hours traders are using.