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I understand that companies release earnings once a quarter, and when they do, their stock price fluctuates wildly outside of trading hours based on their results. And there are external factors such as pandemics, international tensions, etc not directly related to stocks that could also affect the market after-hours.

But I'm curious why it seems that even during most other days, the stock price seems to fluctuate wildly outside of trading hours, even when there are no other major events that seem to affect the stock market.

Particularly, it seems most of the movement in the stock market seems to happen outside trading hours, either pre-market or after hours.

Why does the stock market move so much at those times, and not during regular trading hours?

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As the end of the day approaches, traders head home. They pull their orders which results in fewer participants in the auction. With fewer open orders, the order book thins out, resulting in less liquidity and depending on the stock, possibly increasing the price distance between orders.

Any surge in buying volume, albeit small as compared to regular trading hours, can move price sharply because there's less price resistance. This leads to price volatility.

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  • "pull their orders" ... its not only about pulling their orders. There are many market participants out there who act as liquidity providers (a.k.a. market makers). As the name suggests, they don't have any orders, they are simply providing "paper" liquidity. And those guys tend to do their business during normal hours rather than bottom fishing in the illiquid out-of-hours. – Little Code Jun 15 '20 at 18:37
  • Market makers and specialists do not participate in after hours making it very illiquid. . If they do not participate then they have pulled their orders. Bottom fishing??? LOL. As I mentioned in my other comment to you, institutional trading has participated in after hours trading for may decades. – Bob Baerker Jun 15 '20 at 18:50
  • No Bob. You simply don't understand how the market works. They are providing liquidity, there are no orders to pull. Institutional liquidity providers don't operate by leaving orders on the book. – Little Code Jun 15 '20 at 18:57
  • Exchanges do not require market makers to participate in after-hours trading and they do not require market participants to avoid locking and crossing the after-hours markets. Liquidity is a chicken and egg problem if there is not enough liquidity people don't trade...and if people don't trade there is no liquidity. Some markets (e.g. futures and FX) may continue to have liquidity. Ultimately it is down to how many people are engaged in the market at a given time, which is why it slows down at lunch time and the after hours session has high volume just after the close but quickly dries up. – xirt Jun 17 '20 at 23:48
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One word. Liquidity.

You can see the same effect during normal trading hours if you look at illiquid stocks (e.g. the so-called "penny stocks").

The fact of the matter is that pretty much all the big boys (the institutions) only play during normal hours, and indeed the same applies for the vast majority of retail investors (retail = private individuals, Jo Bloggs).

Thus the only people who trade out of normal hours are the small number of ill-informed retail investors. The lack of liquidity outside of those hours reflects the large fluctuations in fill prices.

In a nutshell : Just like it is unwise to play with illiquid stocks, its equally unwise to go putting on trades out of hours.

Just remember, when you buy, you need a seller (and vice-versa). The more of each, the more efficient the market, the better the price fills.

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  • Your statements that the big boys (the institutions) only play during normal hours and the only people who trade out of normal hours are the small number of ill-informed retail investors are incorrect. Historically, after hours trading was reserved for large institutional investors until it was opened to retail investors/traders in the late 1990's. See Part III. After-Hours Trading. – Bob Baerker Jun 15 '20 at 18:45
  • @BobBaerker The table has turned. The big-boys don't engage in out-of-hours because they prefer to (a) hide their large trades in the noise of the daytime volume and/or (b) act as liquidity provider exclusively during normal hours. So my statement was not incorrect. The nature of the market has changed. – Little Code Jun 15 '20 at 18:53
  • Your conclusion that the only people who trade out of normal hours are the small number of ill-informed retail investors is naive. A large price move due to news or an earnings release can be taken advantage of and only ill-informed investors fail to do so. Simple example: Taking profits. A more specific example is when one holds a long option position. Taking the opposing position in the underlying locks in the gain (options trading is closed outside of regular hours). Should share price spike during after hours and and then reverse by the open, the gain would otherwise be lost. – Bob Baerker Jun 15 '20 at 19:13
  • Its not naive. Trust me, I've been around the markets long enough to know. Out of hours is pretty much the domain of fools these days. Sensible people don't jump on news out of hours, they wait and see how the real market reacts in the morning. – Little Code Jun 15 '20 at 19:19
  • OK, you've been around the markets long enough to know that out of hours is pretty much the domain of fools these days. Sensible people don't jump on news out of hours, they wait and see how the real market reacts in the morning. So you're the authority on this. Got it. Unfortunately, that's not the case. cont. – Bob Baerker Jun 17 '20 at 23:24
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The efficient market hypothesis implies that the key driver of stock price changes is not trading volume but predictive information. A stock price will move whenever there is news in any relevant scope affecting the value of the company, from news about the specific company to news about the global economy.

For example, if a US company has customers or suppliers in Europe or Asia, it will be affected by overnight developments there. And even if it doesn't, it is coupled to other US companies that do. Also, commodities and currencies are global markets, where supply or demand changes anywhere can affect every company that deals with them.

The hours when liquid markets are open just make price fluctuations easier to see and trade, but the fluctuations are happening 24 hours a day regardless. Here are some related items.

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