After Hours Stock TradingWhat is after hours stock trading? Nasdaq after hours trading quotes. How does after hours trading work? After hours market information.
What is After Hours Trading?Trading after hours is when stock market orders are placed and filled after the close of the normal trading session.You can participate in after hours stock trading online but not every online broker offers this service. Those that do, may place restrictions on what types of orders can be used with after hours trades.
What Time Does After Hours Trading Begin?This depends on the exchange and your broker. In the U.S., after exchange hours stock trading usually begins at 4:00 p.m. (Eastern Time)just after the major U.S. markets close and lasts until 7:30 or 8:00 p.m.How Does After Hours Trading Work?Stock market after hours trading occurs in an unbuffered crossing market. This means that after hours trades are person to person trades made via electronic communication networks (ECNs).The ECN (Island and Instinet are two but there are others) acts as a substitute for a physical market. Buyers and seller place orders which are only filled if they can be matched. There is no market maker (MM) or specialist to guarantee order execution or smooth out, or buffer, market action. Until 1999, only professional traders and institutions trading large blocks of stocks had access to ECNs. Now, all investors can access these networks. But it might not be a good idea to do so.
The Problem with After Hours Market TradingThere are two basic problems with trading stocks after hours: liquidity and transparency.Volumes become thin during extended hours trading of stock because most other traders will have gone home to have their suppers. Also, the ECNs do not share a common reporting structure as do the major exchanges. Each ECN may display different prices and volumes for the same security.d This leaves room for arbitrage to take place. Someone can buy a security on one ENC and sell that same security on another ECN within a short time frame and profit from this flaw in the system. Because there is no MM, spreads will be wider. Some ECNs are regulated exchanges while others are unregulated. The transparency problem occurs because some ECNs limit your ability to see after hours trading quotes on other networks.
Nasdaq After Hours TradingThe Nasdaq is an electronic market. There are never any market makers buffering it so that is no different in Nasdaq after hours trading.The extended trading hours on the Nasdaq are 4:00-8:00 p.m. every day the U.S. markets are open. The stock must be a component of the Nasdaq 100 index and after hours trading information is displayed on a 15 minute delay.
The Verdict on After Hours Market Stock TradingI don't think individual investors should participate in after hours stock trading as a general rule. There are too many added risks and inconveniences.When you do place extended hours trades, use limit orders even if you are not required to do so. What the small investor can do is use after hours stock trading action as a leading indicator. What goes on during the extended session is sometimes predictive of what will happen at the next session's open.
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