After Hours Trading Compared to Trading During Normal Hours
Trading stocks on the New York Stock Exchange or the Nasdaq stock market is traditionally done between the hours of 9:30 a.m. and 4:00 p.m. Eastern Time. However, there is trading which takes place after these hours of business. It is commonly referred to as “After Hours trading”, and has been around for some time. This used to only be easy to reach to high net worth investors and institutional investors. Individual investors can now take advantage of After Hours trading by the numerous Electronic Communications Networks (ECNs) obtainable today. Trading after normal hours allows you to take advantage of breaking news stories and information that could affect the market.
There are differences between trading during normal hours and after the market closes. It is advisable to familiarize yourself on the risks involved before proceeding. Finding a good brokerage firm is equally as important, and you should learn as much as possible about what sets they offer. Once you have established which firm you will use, find out about which ECN they use. Some firms may limit you to only using their particular system, or they may use other ECNs.
See if you are able to access other quotes on the different Networks. Check if they will route your trade by to another System. The more access you have to the different ECNs the better. This will allow you to trade with other investors on different systems.
There may be large fluctuations in prices and more volatility. This is because news and events may have a greater impact on stock prices. You may also find that that there are differences in the price of stocks compared to their price during normal trading hours.
During normal hours, trading stocks will have many buyers and sellers creating good quantity within the stock. This makes it easier to complete trades. However, trading volumes may be much lower during after hours, making it harder to trade. Less activity may cause a wide rift between the bid and ask price, making it difficult to get a good price on the stock.
Most of the systems used for trading only accept what is known as a limit order. This is done so that the investor never pays more than the price he wants to buy or sell at. This can be a problem if the market moves away from your price, as the system will not execute your order. In this case, you need to ask your firm whether the system will cancel the orders not executed during after hours trading, or if it will begin again again during the normal trading hours and vice versa.