An Extended-Hours Trading Primer

Wall Street knows some investors never stop worrying about their holdings. That's why the major exchanges offer extended-hours trading.

The regular trading day, of course, starts at 9:30 a.m. Eastern time and finishes at 4 p.m. But as the earnings avalanche of the last few weeks has shown, it's not like companies stop making news outside those hours. In fact, the vast majority of big news releases are issued either early in the morning or after the close.

So for those who can't stand to wait till the next day to pull the trigger on a trade, there's preopen and postclose trading on the Nasdaq, as well as a brief late-day "crossing session" on the NYSE.

Institutional investors have long been able to trade after the market, but it's only been about five years since individuals got the right. The Big Board and the Nasdaq took up their cause in the late 1990s as electronic networks known as ECNs were expanding their hours and coverage, threatening to take some of the established exchanges' coveted customers.

So when Google (GOOG) or Yahoo! (YHOO) puts up its earnings on a Wednesday afternoon, extended-hours trading gives you a chance to get in on the action before the market has had hours to digest the latest developments.

That said, most professionals caution that individual investors shouldn't wade into these waters without taking stock of the many risks. Stocks that trade heavily after hours tend to be more volatile and to be strongly influenced by breaking news, and volume can be scarce even in some of the bigger names. These factors can lead to wider bid/ask spreads that can drive up the cost of trading in preopen or postclose markets.

"The danger of trading in extended hours is the thin volume," says Randy Diamond, sales trader at Miller Tabak. "If you are not careful, you could wind up paying well above the market, or selling way below it."