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How does after-hours trading work?
After-hours trading, also known as extended-hours trading, refers to the buying and selling of stocks and other financial assets outside of the regular trading hours of traditional stock exchanges, such as the New York Stock Exchange (NYSE) and the NASDAQ. This extended trading period provides investors with opportunities and challenges distinct from regular trading hours.

Key aspects of after-hours trading include:

1. Extended Hours: After-hours trading typically occurs before the market opens in the morning and after it closes in the evening. It can begin as early as 4:00 AM and continue until 8:00 PM Eastern Time, though the specific hours may vary by exchange and broker.

2. Limited Liquidity: Liquidity tends to be lower during after-hours trading compared to regular trading hours. Fewer participants are active, which can lead to wider bid-ask spreads and increased price volatility.

3. Electronic Communication Networks (ECNs): After-hours trading mainly takes place through electronic communication networks, which match buy and sell orders electronically. ECNs enable traders to access the market and execute orders outside of regular trading hours.

4. Order Types: Investors can use various order types during after-hours trading, including market orders, limit orders, and stop orders. These work similarly to orders placed during regular hours but may execute differently due to lower liquidity.

5. News and Earnings Announcements: After-hours trading is particularly active around the time of important news releases and earnings reports. Stocks can experience significant price movements in response to such announcements, making after-hours trading an opportunity for reacting quickly to breaking news.

6. Risk Factors: After-hours trading carries specific risks, including the potential for large price gaps, limited access to market data, and less liquidity for entering and exiting positions. Traders should be aware of these risks and exercise caution.

7. Who Can Participate: While after-hours trading is available to both individual and institutional investors, not all brokerage firms offer this service. Additionally, certain stocks may not be available for after-hours trading.

After-hours trading extends the window of opportunity for trading stocks and other assets beyond regular market hours. It allows investors to react to breaking news and earnings reports, but it comes with lower liquidity and increased risks. Traders interested in after-hours trading should check with their broker to see if it's available and familiarize themselves with the specific rules and risks associated with this extended trading session.

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