What is after-hours trading? Can I trade now?
Trading after hours (AHT) refers to the purchase and sale of securities. The reference applies to the main exchanges after the specified trading hours. Both the New York Stock Exchange and the Nasdaq National Market operate regularly.
AHT is now the choice for the average investor.
The emergence of electronic communication networks (ECN) ushered in a new era in stock trading. ECN is an interface network that not only allows individual investors to interact electronically. But it also allows large institutional investors to interact anonymously, thereby hiding their actions.
The development of AHT offers investors the possibility of large profits. But you also need to be aware of some inherent risks and dangers:
- Lack of liquidity – There are more buyers and sellers during regular business hours. During AHT there may be less trading volume for your shares. And it might be more difficult to convert shares into cash.
- Widespread Spread – Lower trading volumes can cause broad spreads between bid and ask prices. Therefore, it is difficult for someone to execute trading at a favorable price.
- Small fish – While individual investors now have the opportunity to trade on the after-hours market.
The reality is that they have to compete with large institutional investors who have access. This access to resources is more than the average individual investor.
- Volatility. AHT markets are traded thin compared to regular trading. Therefore, you are more likely to experience severe price fluctuations in the AHT rather than trading at regular hours.
Illustration of AHT
AHT can be illustrated by an investor who wants to sell Goldman Sachs (GS) shares for 230 dollars after hours. Due to the highly illiquid nature of the after hour market, the highest bid price of a rare number of buyers is 220 dollars. He can change the price limit to 220 dollars for sale immediately. Or he can maintain his initial price and risk part of the order or ‘not filled’ order. At the end of the 20.00 trading session, all orders not executed will be canceled.
We have covered the risk of AHT, but you also need to be aware of the benefits. Having the ability to trade all the time allows you to react quickly. His reaction to news or new information before the market opened the next day. Furthermore, even though volatility is a risk associated with trading after hours, you might find some attractive prices so far.
AHT has grown to the point where all interested investors, big or small, have the opportunity to do business outside of standard hours. Just remember that even though there are benefits to participating in AHT, you also have to pay attention to the risks.
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