Newcomers to the U.S. markets will notice the option to trade during extended hours, a feature that is not present in Singapore markets. Regular U.S. trading occurs from 9:30 AM to 4:00 PM Eastern Time or ET (which is 9:30 PM / 10:30 PM to 4:00 AM / 5:00 AM Singapore Time, depending on whether Daylight Savings Time is observed), while extended trading hours are typically pre-market from 4:00 AM to 9:30 AM ET and after-hours from 4:00 PM to 8:00 PM ET. These sessions allow market participants to react to news and earnings reports that typically happen outside the standard trading window.
Picture generated by ChatGPT
There are several benefits to transact in extended hours: Investors can quickly respond to breaking news, company earnings, or global events that take place beyond regular market hours, enabling them to seize opportunities or manage risks before the main session begins. Extended hours also make it easier for those who cannot trade during traditional market times to participate.
On the downside, trading during extended hours usually means dealing with lower liquidity, which leads to wider bid-ask spreads and increased volatility and potentially resulting in less favourable prices. Not every security may be available for trading, and orders might be filled more slowly or with less certainty compared to normal trading sessions.
The Bedokian’s Take
Considering the advantages and disadvantages highlighted above, all of it could boil down to just one main reason: price discovery. The more market participants there are for a particular counter, the more bid and ask data points are available for investors and traders to see and act upon, and this happens (as one can guessed it) during trading hours. This in my opinion gives a proper valuation and a feel of sentiment level of the counter.
Still, the low liquidity and wider spreads in the extended hours could give a huge plus especially when trying to buy at a deemed lower price and/or sell at a deemed higher price, which works when the buy-in price came out higher and/or the sell-out came out lower upon market opening, The flip side, however, if the opposite happens, then one would be frustrated if he/she had bidded higher or asked lower in the extended hours. In this case, as long as the price bought/sold is within one’s reasonable valuation, then it is not much of an issue to fret on the overpaying/underselling woes since the focus is long-term (unless it is a trading play).
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