Times Insider|‘Why Does the Stock Market Have Pre-Market and After-Hours Trading?’
https://www.nytimes.com/2017/01/18/insider/why-does-the-stock-market-have-pre-market-and-after-hours-trading.html
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Ask The Times
By Neil Irwin
Ask The Times, a Times Insider feature, draws on New York Times expertise to answer questions about current events, science, sports, culture and whatever else is making headlines.
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A reader asks: “Why does the stock market have pre-market and after-hours trading? If trades can occur outside the 9:30 a.m. to 4 p.m. market hours, then why not extend the trading hours altogether, or allow for 24/7 trading?”
Neil Irwin, a senior economics correspondent, considers the question.
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Suppose you grow vegetables and want to sell your produce at a local farmers’ market. Would you just show up any old day and time and hope for the best? Nah, you’d look at the designated hours that the farmers’ market is open, and only go then, when you know that customers will be around. The reason any marketplace sets hours is so that buyers and sellers know when to show up. And the same is true for financial markets.
In the old days, showing up at the same time was more obviously necessary — the traders at the New York Stock Exchange needed to be physically in the same place to buy and sell shares. But even now that most trades happen electronically, it benefits everyone if the exchange sets certain hours as the business day, so that buyers and sellers know exactly when everyone else will be ready to buy and sell. (For the New York Stock Exchange, those hours are 9:30 a.m. to 4 p.m., Monday through Friday.)
In response to new technologies and increased demands (particularly global demands), the stock market began offering extended hours that now allow you to trade shares as early as 4 a.m. and as late as 6:30 p.m. — but there are fewer buyers and sellers at those times. Most traders are busy having dinner with their spouses or asleep or whatever. So even small orders can distort the price; trying to sell just a few thousand shares of a stock might make its price plummet in after-hours trading, whereas, during the trading day, a similar order might find a buyer without affecting the price much at all.
In other words, there’s nothing to stop you now from trading late at night or early in the morning — except that you may find it’s as lonely as an off-hours farmers’ market.
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See more on: New York Stock Exchange (NYSE), The New York Times
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