Why a stock that closed at 100 cost 105
When earnings come out after the close, prices often move sharply in after-hours trading. Investors who place a market order based on the last price on screen are sometimes surprised to be filled far above it. Outside regular hours, there are simply fewer people on the other side of the trade.
This guide explains why spreads widen and the size available at each price shrinks in extended-hours trading. It compares, with a hypothetical order book, how the same order fills during regular hours and after hours, and lists how order types behave and what to check before placing an order.
What happens when participants thin out
Investor.gov describes after-hours trading as trading that occurs outside regular trading hours and notes that the sessions vary across markets and venues. During regular hours, market makers, institutions, and individuals all place orders and quotes are tight; outside them, far fewer participate.
FINRA lists the risks of extended-hours trading, including lower liquidity, wider spreads, greater volatility, orders split across different venues, and exaggerated reactions to news. Brokers connect to different venues, so the quotes you see may not include better prices available elsewhere.
A hypothetical order book
The table compares buying 400 shares of a hypothetical stock that closed at 100, during regular hours and after hours. After hours, it assumes only 200 shares are offered at 104 and 300 at 106.
| Session | Bid | Ask | Spread | Result of a 400-share market order |
|---|---|---|---|---|
| Regular hours | 99.95 | 100.05 (ample size) | ≈ 0.1% | 400 × 100.05 = 40,020 |
| After hours | 97 | 104 (200 shares), 106 (300 shares) | ≈ 7% | 200 × 104 + 200 × 106 = 42,000 |
| After hours, limit at 101 | 97 | 104 | ≈ 7% | Not filled |
The after-hours market order's average price is 105, 5% above the close. The same order cost about 1,980 more than during regular hours.
How order types behave
As Investor.gov's page on order types explains, a market order prioritizes execution but does not guarantee price, while a limit order will not fill at a worse price than set but does not guarantee execution. With thin after-hours books, the gap between those outcomes grows.
Many brokers accept only limit orders outside regular hours. Even limit orders may fill partially, and brokers differ on whether unfilled orders are cancelled or carried into the regular session, so check the order's time in force. As the third row shows, a limit at 101 avoids overpaying, but if the price rises the order may never fill.
What an after-hours price means
The last after-hours trade can be set by a single small transaction. A few hundred shares trading at a much higher price right after news does not mean the next regular session will open there. When regular trading begins, far more orders arrive and the price is set again.
Some quote screens show after-hours prices separately or not at all. When you see an after-hours percentage change, check how many shares traded at that price and on which venue.
It also helps to compare the after-hours move with the volume behind it. A ten percent jump on a few thousand shares says much less about where buyers and sellers will meet in the morning than a smaller move on heavy volume.
Checks before you trade
Before trading outside regular hours, work through these items.
- Confirm your broker's extended-hours sessions and which venues your orders are routed to.
- Look at the current bid and ask with the size at each price, and work out how many price levels your order would consume.
- Set a limit price and a time in force, after-hours only or carried into the regular session.
- Check how many shares set the last trade price and when it happened.
- Decide in advance what to do with the remainder if the order fills only partially.
News and volatility
When earnings or disclosures arrive after the close, after-hours prices can swing widely. Interpreting the news takes time and a small number of early orders set the price, so direction can reverse within minutes. FINRA also notes that after-hours prices may differ from regular-session prices.
Professional investors and fast information processors make up a relatively larger share of participants in these sessions. Even an individual who reacts quickly to the same information may be filled at an unfavorable price.
Limits of the comparison
The quotes and sizes here are hypothetical and illustrate how fills work. Real after-hours books vary greatly by stock, time, news, and venue, and markets such as Korea and the United States run extended sessions differently.
When trading, check your broker's extended-hours terms and the latest material from FINRA and Investor.gov with their dates. This guide does not recommend any trade, timing, or security.