Candlestick Trading Blog
November 11, 2008
After Hours Trading
After hours trading occurs either before or after the regular exchange hours and it became available to individual investors in the late 1990's. The regular stock exchange hours are from 9:30 a.m. to 4:00 p.m. Eastern Time. Initially after hours trading was only available to major institutional investors as well as high net worth individuals, but with the increase in online investing, it has become available to a wider range of individual investors. This is due to the rise of Electronic Communications Networks (ECNs) that now allow everyday individual investors to gain access to the after hours markets. The majority of online brokerage firms charge the same price for after hours stock trading as they do for trading during regular hours. There are some caveats however that can make it more expensive than when trading during regular hours. For instance some firms charge a premium in those cases for limit orders, which are recommended during after hours trading. Additionally stock prices after hours may not always track with the stock's closing price during regular hours, or when the market reopens. Also, when there is an insufficient number of buyers and sellers, it can make it difficult to obtain a desirable price for stock. There can also be limited information about price quotes and sever price swings, in addition to a lack of liquidity. After hours trading provides great investment opportunities, but there are risks that investors should understand before they participate in this type of stock trading. First of all, some firms only allow investors to view quotes through one trading system that their firm uses for after hours. You must be sure that your firm allows you to access quotes on other ECNs, and more importantly that the firm will route your order for execution to the other ECN that you use. You don't want to be limited to one trading system. Speaking of stock quotes, there is also larger quote spreads between the bid and ask prices due to less trading activity. This can make your order more difficult to execute or you may not get as favorable a price as you could have during regular market hours. Lastly, another issue that investors should look into when after hours stock trading, is that the prices of some stocks traded during after hours sessions may not reflect the prices of those stocks during regular hours. These prices are uncertain either at the opening of regular trading the next business day, or at the end of the regular trading session. There are more risks associated with after hours trading that every investor should look into. Specifically, the bias towards limit orders as well as the inability to see or act upon quotes. Bottom line, just with trading stock during regular business hours, you must have a complete understanding and total knowledge of what it takes to trade after hours. Online Stock Market Reviews presented live via the internet by Stephen Bigalow |
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