After hours stock trades
The after hours stock trades refer to the stock trading that is carried out other than the usual stock trading hours of the most important exchanges like the NASDAQ trading market and the New York Stock Exchange. The usual timing for stock trading is between 9.30 a.m. to 4.00 p.m. Eastern Time.
The after hours stock trades are not a new concept. These have existed every since but are usually restricted to the institutional and the high net-worth investors like the mutual funds. This has been made possible after the introduction of the Electronic Communications Networks (ECN).
On one hand where the after hours stock trades allows bigger opportunities and convenience for the investors on the other hand they also pose as a great risk. These markets are very volatile it is hence advised that before venturing into any such options you should get some knowledge about the risks that are associated with such trades.
A few of the risks that are associated with the after hours stock trades include:
• It does not have liquidity, which is the ability to convert the stock into cash. This is dependent on the availability buyers and the sellers and the ease in the completion of the trade. In the usual trading hours it is easier to trade as buyers and sellers can deal with one another. However in after hour trading the market is slow and it can be difficult to carry out some of the stock trades. There are some stocks that do not trade in the after hours.
• You would not be able to see the quotes or act according to them. Though you can get quotes on the ECN but still it is not necessary that you would be able to trade on the quotes. You are required to confirm with your company whether they would be able to direct your order for completion to another ECN. In case you are restricted to quotes from one system then you would not be able to finish the trade even if you have an investor ready at the other ECN.
• There is possibility that there would be a large spread of the quote. This results in a huge difference in the id and the ask price. This is because of the reduced volume of trade.
• The after hour trading can also have a lot of computer delays which can affect your buying and selling.
• The prices in the after hour trading fluctuate more than usual. The news has a great effect on the after hour trading and this results in huge variations.
• There are many electronic trading systems that are able to accept limited orders where you are required to enter the price that you would prefer to complete your order at. With limited orders you can be assured that you will not pay more than the price that you have determined. In case the market drifts from your price then your order is not completed. You should confirm with your broker whether the orders that are not completed during after hours would be carried to the usual trading hours or would be canceled.
• It is usually seen that most of the traders in the after hour stock trades are professionals associated with big institutions who have access to more information in comparison to the individual traders.
Cost of after hour stock trade:
Usually it is seen that the brokerage firm charges the same amount for the after hours stock trade as the regular hour trade. But there are some firms that would include premiums in all the cases o limited orders that are suggested in after hour trades. Besides after hours stock trade costs involves more that the usual commissions. It is not necessary that the after hour stock price would track with the closing price of the stock during the usual trading hours or the price when the market opens again.
Even the lack of the stock market volume during the after hours can make it difficult to obtain a stock at a price that you want; the limited information about the price quotes and the uncertain and rigorous price swings can lead to the increased costs of the after hour stock trade. For more information on the after-hours trading.
How to place an after hour trade:
To carry out an after hour trade you are required to log into the web site of the brokerage firm. Then you should go to the trading section and look for a link that leads you to after hours stock trading or extended hour's stock trade. This is different that the order screen meant for regular trade. Most of the firms allow limited orders and do not have alternatives that specify the AON or GTC. However, there are some firms that are starting to provide market orders and in some time would also be able to allow the pre-open market orders for trades to be carried to the regular trading hours in case the order is not completed in the after hour stock trades.
You should always bear in mind that the trading type differs from one online brokerage firm to another. It is hence advised that before you start your after-hour trade you should consider going through the information provided by the online broker so that you can consider trading with the broker accordingly.
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