If the markets are closed… how do we know what the stock is worth at that moment on the market?
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Stock markets work by matching an incoming volume of buy vs sell orders for a stock in real time, and the price of the last sale is how much the stock is worth.
However, there’s nothing about the general process of buying and selling that requires a market. If I have a share of some stock, and you want it, we can simply agree on a price and do the transaction without involving anyone else.
So, for after hours trading, brokerages use secondary networks (ECNs) that are outside of stock exchanges to trade among themselves. Because there’s no fixed price, you always have to place a limit order (“buy me 100 shares at $20” or “sell these shares at $50”). The ECN will only be able to execute the trade if someone else on the network has a corresponding limit order that you can match with.
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