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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?

Sam
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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.

Bob Baerker
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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.

nanoman
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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.

Little Code
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