You should be aware of the fact that the stock market is open Monday to Friday from 9:30am to 4pm bar holidays. This is known as the regular trading session and a huge number of shares and other securities are traded each day – ensuring highly-liquid assets are traded seamlessly. (1)Nasdaq."Market Trading Hours for Nasdaq."(2)NYSE."Holidays & Trading Hours."
If you are a newcomer to the trading industry, then you might not be aware of the fact that there are additional windows for trading which happens before 9:30am and after 4pm. Three are two sessions, namely:
- Pre-market: 4 am to 9:30 am
- Post-market: 4 pm to 8 pm
In the pre- and post-market sessions, the volume of shares traded is considerably smaller than the amount of shares traded during the standard day trading session. Trading shares outside of standard hours comes with its own considerations which you need to take into account. We’ve run through these aspects below.
Liquidity Restrictions
Pre- and post-markets weren’t always open to retail traders as it is now. Before, these trading sessions could only be utilized by institutional investors but has since opened up. This may prove tempting if you are a retail trader, but it is important to take note of the liquidity of stocks after hours.
There is far less liquidity and this tends to disrupt the process of buying and selling securities. Plus, with fewer people trading in these sessions, it’s not always possible to sell stock as you might expect – particularly if it’s stock of lesser-known companies.
Economic-related Factors
There are plenty of economic-based statistics that’s usually released just before normal trading sessions commence. These indicators can play an integral role in kickstarting market movements. If you trade in the pre-market session, then you won’t be privy to this information nor will you be trading during the day when the market has been shaken up.
After Hours Curtailments
When using an online platform for after hours trading, you will also be limited in terms of the features and services available to you. For instance, we have outlined the differences of engaging in normal trading and after hours trading with reputable online brokers.(4)Charles Schwab."About Extended Hours Trading."
Normal trading session
- High maximum shares and multiple order type execution.
- Online trading activities take place on an exchange
- Wide selection of securities available
- Possible to carry over trades
After-hours trading session
- Must be traded within the current trading session.
- Majority of NASDAQ and listed securities can be traded.
- Online electronic market trading.
- Lower maximum shares per order.
Keeping Abreast of Company-based News and Reports
Naturally, you can expect companies to keep earning reports and other financial disclosures out of the public eye during regular trading sessions, if at all possible. This is particularly true if those reports are not favorable and companies are looking to avoid investors reacting instantly by selling off shares. However, keep in mind that stock prices can still change outside of regular trading hours.
Therefore, it is vital that you keep abreast of all the latest financial news. If you do, and you are someone who trades outside of normal Monday to Friday day sessions, you will be in a far better position to capitalize on fair value of stocks. Furthermore, once the market opens, then the price will have changed so being one step ahead will enable you to make the trade before it’s too late.
Volatility In the Market
It’s important to consider the volatility in the market after hours. For instance, most trades are being placed by institutional traders but the actual volume of trades will be on the lower end of the scale. Thus, a couple of big trades will have a major impact on the price of a stock and can blur the lines as to when you should buy or sell.(3)Securities and Exchange Commission."After-Hours Trading: Understanding the Risks."
Moreover, spreads for bid-ask prices can be wider and this may stop you from being able to trade stocks with fair values attached. It’s quite possible you will have to settle for trading stocks with higher asking prices.
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