After-Hours Trading
After-hours trading refers to the buying and selling of stocks before and after the markets normal operating hours. Most stock exchanges, such as the Nasdaq and the New York Stock Exchange, are open for normal operating hours between 9:30 a.m. to 4:00 p.m. EST. After-hours trading happens on most exchanges from 7:30 a.m. EST until the markets open, and also from the time the markets close until around 8:00 p.m. EST.
Until the summer of 1999, After-hours trading was open only to institutional investors, such as hedge funds and mutual funds, and individuals with high net worth. But now, a law has been passed that allows even average investors like you and me to trade after-hours. But even with fewer restrictions than ever on who can invest before and after the markets are closed, after-hours trading only accounts for about 1% of overall trading activity.
Why so little after-hours activity? Simply put, there are a lot of risks and dangers that come with trading during off-hours. First of all, because there is not as much trading activity compared to regular-hours trading, the price fluctuations for share prices become much more severe and volatile. Also, because of the lower trading volume during after-hours trading, there is usually a wide spread between bid and ask prices for stocks. As a result of the wide spread between bid and ask prices, it becomes harder for investors to buy and sell stocks at a favorable and predictable price. There are also many more risks, such as less liquidity, competition with professional traders, and potential for computer delays.
After-hours trading is a pretty confusing concept to grasp, and there are a lot of specific rules and issues that must be acknowledged in order to fully understand the process. But, as long as you have a simple understanding of after-hours trading, you should be confident enough to make the occasional investment after the market closes or before it opens.
Niki Pezeshki
College Trillionaire
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