What it means
Most stock exchanges operate a regular session with fixed opening and closing times. The opening is usually preceded by an auction or order-collection period that sets the first price, and the close often ends with a closing auction that sets the official closing price.
These two moments are often the busiest times of the day. Outside the regular session, some venues offer extended trading.
Pre-market and after-hours sessions allow orders to be matched when the main market is closed, often in response to news such as earnings announcements. Volumes are lower, spreads are wider and prices can swing sharply, so the risk of poor execution is higher.
Some markets run almost round the clock. The foreign exchange market follows the sun from Asia to Europe to North America, with overlapping sessions when activity peaks, and some derivatives and digital-asset markets trade continuously.
Each session has its own character, depending on which participants are active. For businesses, sessions matter for practical reasons.
A treasury team needs to know when a currency market is most liquid, meaning easiest to trade without moving the price, to get good rates. Companies reporting results often time announcements outside the regular session so investors have time to digest them.
Sessions also affect measurement. The closing price used in accounts and fund valuations is normally the price at the end of the regular session, and a fair value at a reporting date depends on which market and session are used.
Stale prices from a closed market can distort valuations. Always check the opening hours, holidays and half-days for the exchange concerned, because they change and differ by country.
A trade placed during a holiday in one country may not settle until the next working day.
In practice
Real-world examples.
Example
A company announces a profit warning after the market closes. The share price falls 8% in the after-hours session on thin volume. The next morning the price opens near the after-hours level, and the board explains the news to shareholders.
Example
A manufacturer with euro invoices schedules its currency purchases during the overlap between the European and North American sessions. Prices are tighter and trades are easier to complete. The treasury team estimates the timing saves a small amount on every deal.
Example
A fund administrator calculates the end-of-day value of a portfolio using closing prices from each exchange. A Japanese holding has a closing price from several hours earlier than a US holding. The team adjusts the process to reflect the difference in sessions.
Formula
Calculation
Volume-weighted average price (VWAP) = sum of (price x volume) / total volume
Suppose a share trades 1,000 shares at $20, 3,000 shares at $21 and 1,000 shares at $22 during a session. Total value = (20 x 1,000) + (21 x 3,000) + (22 x 1,000) = 20,000 + 63,000 + 22,000 = $105,000. Total volume = 1,000 + 3,000 + 1,000 = 5,000 shares. VWAP = 105,000 / 5,000 = $21.00, a fair benchmark for judging whether an order was filled at a good price during the session.Case study
Seen in the real world.
Maplewood Instruments is a fictional listed company used for illustration. Its finance team planned to announce quarterly results during the regular session to align with a conference call. The investor relations adviser pointed out that the announcement would arrive when trading was heavy and the market could overreact to the headline figures.
In this illustrative story, the company moved the release to just after the close and held its call an hour later. Analysts had time to read the full report, and the next day's trading was calmer. The lesson is that the choice of session is a communications decision as well as a trading one.
The company also asked its broker to monitor the after-hours order book for the first hour after the release. That gave the investor relations team an early read on how the market was digesting the numbers, and it allowed them to prepare answers for the following morning.
Watch out
Common mistakes.
- Treating after-hours prices as equal to regular prices. Thin volume and wide spreads mean they can be far from the later opening price.
- Forgetting that markets close on different days. National holidays can delay settlement and affect cash planning.
- Using a stale closing price from a closed market for valuation without adjustment. The price may no longer reflect conditions.
Questions
People also ask.
What is the regular session?
It is the main period of official trading hours on an exchange, with the highest volume and the tightest spreads.
Why are the open and close so busy?
Many orders accumulate before the open, and many funds trade at the close to match benchmark prices.
Can I trade after hours?
Many brokers offer extended-hours trading, but orders may be limited to certain types and prices can be volatile. Using limit orders rather than market orders is the usual precaution.
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