"After the bell" refers to any period of time after the formal close of trading for the day on a stock exchange. It usually refers to after-hours trading on the exchange. The "bell" is the bell on the floor of the New York Stock Exchange (NYSE), which is rung at the beginning and end of the trading day.
The New York Stock Exchange is the biggest stock exchange in the world measured by market capitalization. Its listed companies are worth more than $11 trillion US Dollars (USD), and its average daily trading value is more than $150 billion USD as of 2011. The tradition of ringing a bell at the start and end of trading dates back to the 19th century, when continuous trading throughout the day was introduced. It is considered an honor to ring the bell at the NYSE.
Generally, trading hours for the NYSE and the other big New York-based stock exchange, the NASDAQ, are from 9:30 am to 4:00 pm, Eastern Time. After-hours trading, done "after the bell", normally occurs between 4:00 pm and 8:00 pm ET. After-hours trading is sometimes called extended-hours trading.
After-hours trading is often an indicator of the next day's trading activity, or a reflection of the global markets which are being traded during New York's off-hours. After-the-bell trading also allows investors to react to news. This is particularly important in cases when a company may purposely wait until the end of a day's trading to announce significant news.
In the past, after-the-bell trading was limited to institutional investors, like mutual funds, or other high net-worth investors. New technology, however, has allowed smaller investors to use private trading systems known as electronic communication networks (ECN) to participate in after-hours trading. An ECN is an interface that allows small investors to join in the after-hours market, while also allowing large investors to participate anonymously.
While there are benefits to trading after the bell, there are also risks. There are fewer buyers and sellers after hours, so there is less liquidity, meaning there is less volume trading for a stock, and it may be harder to convert shares to cash. It might also be difficult to find a favorable price, as fewer shares traded can mean wide spreads between asking and selling prices. There are also more likely to be severe price fluctuations. Additionally, though ECNs allows small investors to participate, institutional investors still have access to far greater resources than any individuals, thereby gaining an advantage in after-hours trading.
