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In India, there are two primary stock markets - BSE (formerly Bombay Stock Exchange) and the National Stock Exchange of India (NSE). Both these markets operate from 9 AM to 3:45 PM. While regular trading happens during these hours, after-market orders are orders that come to trade after the market closes.
You can place such an order to buy, sell, deliver, or receive securities or commodities any time between 3.45 PM and 8:57 AM the next trading day. These orders are registered as AMOs or “After Market Orders”. These orders are pushed into the market as soon as they open on the next trading day. Let us now understand in detail what after hours trading is and how you can do the same through your trading account with this article.
Key Takeaways
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After-hours trading allows placing buy or sell orders between 3:45 PM and the next market opening.
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These orders are queued as automatic market orders and issued to the exchange as soon as trading restarts.
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After-hours trading helps investors who miss standard hours or expect midnight news to impact prices.
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With less liquidity and more volatility, proper pricing planning is important.
What Are After-hours Trading Timings?
The BSE and NSE shut shop at 3.45 PM. They reopen at 9 AM the next day. After-hours trading takes place in the period between when the market shuts down and then re-opens the next day. You have to be careful while placing an AMO too close to opening time.
Here are the exact timings: If you want to trade in equity, the after-hours trading takes place from 3:45 PM to 8:59 AM for BSE. The same for NSE is from 3:45 PM to 8:57 AM.
To place an AMO for currency trading, you have to trade between 3:45 PM and 8:59 AM. For trading derivatives such as futures and options (also known as F&O), the after-hours trading takes place between 3:45 PM and 9:10 AM.
Why is After-hours Trading Important?
After-hours trading gives you the option of trading at attractive prices at your own pace. It helps you plan your investments well, too.
One of the reasons for you to invest in after-hours trading is that it gives you the time to analyse market trends. You see how the stock has behaved, look out for government announcements that can impact the stock or the release of financial statements by a company. So, while it may seem like after-hours trading helps you catch up on market trends, it also enables you to plan.
After-hours trading may help you minimise losses if used wisely. If you foresee a change that could lead to a drop in prices in the future, you can cut your losses by selling your stocks ahead of the slump.
At the same time, you should be careful of the negative repercussions of after-hours trading. When you sell stock during after-hours trading, you expect a specific price for it based on how the stock closed the previous day. This may not be true every time.
Also, if you place an AMO, you cannot place it with a stop-loss order to minimise your losses. Stop-loss orders are orders that come with riders for selling stocks only if the prices reach a certain level.
Example of After-Hours Trading
Let’s understand the concept of after hours trading with a practical scenario. Suppose a company releases outstanding profits at 6:00 PM. An an investor, you assume that its share price would rise when the market opens. You put a buy limit order for ₹1,000 after the market closes for the day. When regular market hours resume the next morning, your order becomes live.
If demand increases the price, your limit order may be executed at ₹1,000 or lower. If the stock opens higher than ₹1,o00, your order may stay unfulfilled.
In this case, after-hours trading does not imply quick execution; rather, it allows you to queue your transaction outside of normal business hours and be ready when the market opens.
How Do I Place an Order For After-Hours Trading?
After-hours trading is as simple as regular trading, and you need a Demat account. Log on to your Demat account after regular market hours. Place and order for buying or selling an equity derivative or commodity, just as you would for a regular order. Click on the option for AMO. The broker will take your order and push it to the stock market as soon as the market opens the next day.
How After-Hours Trading Affects the Stock Price?
The stock market trading time, outside of regular business hours, can have an impact on how share prices fluctuate at the start of the following session. After-hours trading might have the following effects:
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Opening-price gaps: News or events that occur after the typical market closure can cause a stock's price to start considerably higher or lower than the previous day's closing.
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Price discovery shifts: Buyers and sellers in the after-hours window start preparing for the next day's opening. These predictions may narrow or broaden once full trade resumes.
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Execution uncertainty: An order placed after hours may not execute at the anticipated price since the actual filled price is determined by the following session's order book and volume.
These factors make it important to look into how shifts in stock market trading hours, particularly after typical hours, might impact your transaction outcomes at the following market open.
Risks of After-Hours Trading
The period after the share market closing time comes with certain risks that traders should be aware of. This may include:
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Risk |
What It Means |
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Low liquidity |
Fewer participants, making order execution difficult. |
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High volatility |
Small trades can cause sharp price movements due to limited activity. |
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Uncertain execution |
Final execution price may differ from expectations at market open. |
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Wide bid-ask spreads |
Limited activity leads to less favourable pricing. |
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Price gaps |
News after the share market closing time may cause the stock to open significantly higher or lower. |
Extended Trading Hours - The India Story
Globally extended trading hours are followed in influential exchanges, and so is the case with Indian markets. However, the markets operate on special pre-announced days during non-market hours and holidays.
The Indian regulator Securities and Exchange Board of India (SEBI) had initiated the facilitation of extended trading hours to bring the Indian market in line with the global ones. Brokerage firms were already operating in the commodity markets during those after-market hours, hence it is not much of a problem for them to start operating in the equity market during those hours.
However, there is still a consensus to be reached on the part of the exchanges. The individual exchanges need to send proposals to SEBI outlining various risk mitigation measures and many practical aspects related to regulating the extended trading hours system. For example, what would be the cost-benefit analysis of such a move? Would the income also increase as a consequence of increased timing? Is this a need for the market? Are we merely following global practices that may not benefit us? Would this also require an upgrade in the banking system of domestic banks? These are some of the issues that need clarification in the Indian context.
Why Bother With After-Hours Orders?
After-hours trading is crucial because significant changes frequently occur after the market has closed. Company results, policy statements, or global events reported in the evening or late at night may have an impact on how a company performs when trading begins the following morning. Placing an after-hours order allows you to reply to such notifications without having to wait for the following session.
This timeframe allows you to analyse announcements, estimate probable effect, and determine a reasonable purchase or sell price. You can place a limit order ahead of time, and it will be added to the queue when the market opens. While this does not ensure execution at the anticipated price, it can assist you in avoiding making last-minute decisions during high market activity.
Benefits Of Extended Trading Hours
Faster response: As we know, the markets are quite responsive to current news and events. These often determine the mood of the market and set the tone for things to come. Extended trading may give traders an advantage to react faster to the news and events than would be possible within restricted trading hours. Some companies release quarterly reports and earnings reports outside of trading hours. Traders would be able to react immediately to business news such as this. In a sense, it is like capitalising on the first-mover advantage.
Convenience: Several investors who are not full-time traders miss out on investing in the stock markets because of its restricted hours to place and execute orders. Extended trading could provide added convenience to these part-time investors to set more trades and capture higher profits.
At par, globally: Such an extension would help Indian markets be at par with their global counterparts. Indian markets are influenced by global markets, especially NASDAQ & DOW, and the reverse is also true. Given the interdependent relationship, traders would benefit from the extended trading hours that overlap with global stock exchanges. This measure would also draw larger investors who participate in global markets towards a synced Indian market.
Avoid losses: Extended trading hours could also help traders plug losses by using this window to place necessary orders that can later help the trader exit a losing position when regular trading begins.
Capture market: Despite the volatility, some traders may get shares at attractive prices. This trend is visible in the case of stocks that are impacted by news events. Traders can leverage the extended trading hours in such cases, instead of waiting for the next working day to take a position.
Things to Remember About Extended Trading Hours
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Individual brokers may have their own policies for after-hours trading, and it would be prudent for the investor to be aware of the same.
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Currently, the volume of shares traded in the extended trading hours and the number of traders who trade during this time are lower. Hence, one could expect more volatility due to the lower trading activity.
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The opening price of a share in the stock market may not necessarily be the same as its closing price in the after-hours market. Moreover, the share prices of a specific stock during the extended trading hours may not reflect the same stock price in the regular market hours.
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Individual buyers would be more likely to deal with institutional buyers, which puts the former at a disadvantage. Institutional buyers would have a competitive advantage, such as access to more current information, as well as more capital and resources.
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If the market reacts to unfounded news or rumours, it will negate the first-mover advantage. Additionally, significant news events and stories would also lead to fluctuations in the share prices. In short, the environment would be more prone to more significant price fluctuations.
While there are several benefits to extended trading, investors must be cautious of the downsides and volatility that come with it to minimise risks and maximise returns.
It remains to be seen how Indian exchanges align with the global markets by using extended trading hours. Indeed, this is something that will require traders to come out of their comfort zones. However, as the Indian economy moves ahead and gains momentum, it is best to have a level playing field with the world!
Conclusion
After hours trading provides investors more time for placing orders after the market shuts down, allowing them to manage their transactions without relying entirely on regular sessions. It is especially handy when critical updates are provided in the evening or at night, allowing investors to place orders in advance for the following day. Investors can use this time to plan their price levels carefully and avoid making last-minute judgements when the market opens.
However, this trading period is not without its constraints. Lower participation, broader price swings, and uncertain execution imply that orders may not always be completed at the desired amounts. If done well and wisely, you can reap the benefits of after-hours trading at your own pace. Use it as a tool to analyse market trends and make informed decisions.