In trading, activity is not restricted to daytime trading sessions. Even after the regular business hours are done, you can still buy or sell stocks and bonds. This is called after-hours trade.
But do after-hours trades count as day trades? Read on to find out.
An after-hours trade does not count as a day trade. Day trade means that the buying and selling occur within a single business day, usually between 9:30 AM to 4:00 PM Eastern Time. After-hours are separate trading sessions happening before or after this prescribed time.
Even when you buy after-hours and sell it during the market hours, there will be more than one business day involved in the process.
A trading session represents a single day of business. The opening bell signals that the market is now open, while the closing bell marks the end of the trading day.
Most trading takes place during the day trade, but activities can still happen before or after the market opens or closes for the day. Electronic Communication Networks (ECNs) make this possible.
After-hours trading can be separated into two different times of the day.
Pre-market trading occurs the morning before the market opens, typically from 4:00 AM to 9:30 AM ET.
On the other hand, post-market trading sessions start from 4 PM to 8 PM ET. This is where most after-hours trades usually happen.
There are certain risks associated with after-hours trading.
Compared to the number of buyers and sellers during regular hours, after-hours trading usually means less trading volume for your stock. It may also be more challenging to convert your shares to cash.
After-hours tend to be more volatile, so you will likely experience severe price fluctuations.
Individual investors are expected to encounter tougher competition from individual investors during this time.
While after-hours trading comes with several risks, it also offers some benefits. Investors can quickly react to breaking news for post-market sessions before the market opens the next day.
Some also prefer trading at off-peak times because they provide added flexibility. You may also find attractive prices at this time despite the volatility risks.
You are regarded as a pattern day trader if you execute four or more day trades within five business days. The number of your day trades corresponds to more than six percent of your total transactions in the margin account for the same period.
According to the Financial Industry Regulatory Authority (FINRA) rules, this is a US-based independent regulator securities firm.
Firms are required to designate investors of pattern trading based on their trading activities. Once proven, they will impose a special margin requirement on the investors’ day trading accounts.
One of the conditions is for pattern day traders to maintain minimum equity of $25,000 in their margin account before engaging in any day-trading activities.
If this amount falls below the requirement, they will not be allowed to day trade until the minimum equity is restored.
Pattern day traders cannot trade more than their day-trading buying power or maintenance margin. If they exceed, the broker-dealer will issue a day trading margin call.
Once the call is received, they have five business days to deposit funds to meet the margin. Their buying power is restricted to two times the maintenance margin excess based on the daily total trading commitment.
Failure to meet the margin call will result in account restrictions. Pattern day traders will trade only on a cash available basis for 90 days or until the call is met.
Typically, once you are labeled a pattern day trader, your firm will continue to regard you as one, even if you do not day trade for five days.
In trading, a business day signifies the period a stock exchange is open. For example, the New York Stock Exchange’s business day is between 9:30 AM to 4:00 PM ET.
Business days are usually Monday through Friday. When a business day closes, all trading is frozen in time until the next business day begins.
In the United States, there are 253 trading days in a year, on average.
Several circumstances can lead to no trading day or shortened trading days. These include holidays or days when a state funeral takes place.
The stock exchange is closed on New Year’s Day, Good Friday, Memorial Day, Labor Day, Thanksgiving Day, and Christmas Day, among other holidays.
During New Year's Eve, trading is still permitted.
The days before Independence Day, Thanksgiving, and Christmas trading days are shortened. Stock exchanges are usually open from 9:00 AM to 1:00 PM ET.