Ticker&TapeHow the stock market works: hours, liquidity, spreads
The stock market is a meeting place for buyers and sellers. Knowing when it is open, who is trading and how prices are formed will save you from some expensive beginner surprises.
The U.S. exchanges
Most U.S. stocks are listed on the New York Stock Exchange (NYSE) or the Nasdaq. Today nearly all trading is electronic. When you send an order through your broker, it is matched with an order from someone on the other side within a fraction of a second.
A price only changes because buyers and sellers agree on a new one. If buyers are more eager, they pay up and the price rises. If sellers are more eager, they accept less and the price falls.
Trading hours
The regular session runs from 9:30 a.m. to 4:00 p.m. Eastern Time (ET), New York time, Monday to Friday, except market holidays. Most of the day's volume, and the most reliable prices, happen during these hours. The first and last 30 minutes are usually the busiest.
Outside regular hours there is extended-hours trading:
- Pre-market: roughly 4:00 to 9:30 a.m. ET.
- After-hours: roughly 4:00 to 8:00 p.m. ET.
- Volume is much thinner, so prices can jump around and spreads are wider.
Why earnings come out outside hours
Companies usually report their quarterly results before the open or after the close. This gives everyone time to read the numbers before the regular session starts. That is why a stock can open far above or below the prior close: a gap. Check the earnings calendar so a report never catches you by surprise, and see gaps to learn how to read them.
Liquidity and the spread
Liquidity is how easily you can buy or sell without moving the price. A stock that trades millions of shares a day is liquid. One that trades a few thousand is not.
The bid is the highest price a buyer is offering; the ask is the lowest price a seller will accept. The gap between them is the spread. In a liquid stock the spread may be one cent; in a thin one it can be much larger, which is a hidden cost every time you trade. Growth traders prefer stocks with solid daily dollar volume so they can get in and out cleanly.
Delayed vs live prices
Some data sources show prices delayed by 15 minutes or more. That is fine for studying charts after the close, but before you place an order always confirm the live bid and ask in your broker. Daily charts are built from the final official close, which is what most of our analysis uses.
Common mistakes
- Trading in the pre-market or after-hours without realizing how thin the volume is.
- Holding a position into an earnings report you did not know was coming.
- Buying illiquid stocks and losing money to wide spreads.
- Placing an order based on a delayed quote.
Key points
- The regular U.S. session is 9:30 a.m. to 4:00 p.m. New York time.
- Earnings are reported outside regular hours, which is why stocks gap.
- Liquid stocks with tight spreads are cheaper and safer to trade.
Check what you learned
Answer at least 2 of 3 correctly to complete the lesson.
1. A company reports earnings after the close and the next morning the stock opens far above the prior close. Why?
Companies usually report before the open or after the close. Everyone reacts to the news at once, so the stock can open far from the prior close: a gap.
2. A stock shows a bid of $30.00 and an ask of $30.40. What does this tell you?
The gap between the bid and the ask is the spread. In liquid stocks it may be a cent; a wide spread costs you every time you trade.
3. Why should you be careful trading in the pre-market or after-hours?
Extended-hours trading has far less volume than the regular session, which makes prices less reliable and trading more expensive.
Open the earnings calendar → Try it on Ticker&Tape