After hours trading is where a stock trader trades after the conventional trading hours of the major exchanges. For example, if you are trading stocks at 4.30pm on the New York Stock exchange it would be considered after hours trading as the NYSE closes at 4pm.
Can I trade after hours?
Yes, in this day and age almost everyone can trade after hours. It used to only be an option to “big players” in the stock market like hedge funds and mutual fund mangers, but with the recent invention of ECN networks, it has opened the doors to smaller traders too. By investing in stocks after hours, you are increasing your potential for greater returns, but also greater losses.
Even with the ability to trade after hours, it is not always the best strategy. There are risks associated with trading after the close of the stock markets that must be carefully considered prior to attempting after hours stock trading. If you are particularly adverse to risk, you may want to avoid after hours trading all together.
After Hours Stock Trading Risks
If you have read any of the other articles on howtotradestocks.org, you may have come across me talking about how risky stock trading can be. The truth is, after hours trading carries additional risk factors and it would not be wise to ignore these. Some of the big risks you will be facing will include:
Orders that are not guaranteed
While an order is never actually 100% guaranteed, there is a greater risk than an order won’t be carried out after hours. This is due to the lack of liquidity in the market, and there is the risk there might not be another party to take the other side of your trade.
Again due to the lower liquidity levels, trading after hours may result in higher spreads than you would normally see. This could pose a risk to your trading strategy, and lead to loss of capital.
After Hours Stock Trading Carries The Risk Of Higher Volatility
After hours trading is often more volatile than normal trading. News events may move the market significant more than they normally would. This might suit some traders who prefer to trade in highly volatile times, but this level of volatility may not be suitable for every investor.
Price Uncertainty After Hours
As well as the prices being highly volatile during after hours stock trading, the next trading day may not open where after hours trading finished. This price uncertainty could lead to serious consequences to your trading plan.
Broker for after hours trading
Not all stock brokers offer after hours trading. Discount broker Zecco does not offer it at all. Tradeking and Optionshouse allow trading one hour after the close and one hour before the opening. Optionsxpress offers trading from 7am-9.30am and 4pm-8pm.
Trading hours vary by broker, and you should familiarize yourself with your brokerage’s policies concerning after hours trading.
These are the main additional risk factors associated with after hours stock trading. There are many more minor risks to consider as well. If out of hours trading is for you will again depend completely on your appetite for risk. If you are looking for the potential for high returns, out of hours stock trading might just be for you.