Whether it’s from the TV news, Hollywood movies, studying economics or personal interest, most people know that stock markets exist all around the world and are populated by traders, even if they don’t know much more about how it all works. However, anyone who interested in being more active on the stock market would do well to learn about both the mainstream and the after hours trading opportunities that exist.
What exactly is after hours trading?
A basic explanation is that it’s any financial securities trading which takes place after the standard 9.30 am – 4 pm EST hours of the New York Stock Exchange. After hours trading began back in the 1980s on a small scale, and became more known in 1991 when the New York Stock Exchange experimented with a limited after hour trading period. Over time the hours have extended further and now most after hours trading happens between 4 – 8 pm.
Later trading is possible, and it’s not uncommon for people to start trading at 4 am, however, be aware there’s a difference between after hours trading and extended trading, the latter generally starting round 4am and taking place prior to the opening of the stock market for the regular day’s trading.
After hours trading is growing in popularity nowadays as technology enables people to trade away from an exchange, using a third party matchmaker instead. We have Electronic Communications Networks (ECNs) or Electronic Stock Exchanges to thank for the possibility of after hours trading. This system works by finding matches between both buy and sell orders, and this can be organized so such trades have the entire after-hours period to be filled.
It’s worth noting that after hours trading takes place at the end of a regular day, but is a different animal to ‘early morning trading’, which as the name suggests happens before the market opens for the day.
· Not all types of orders can be processed during after hours trading sessions, so while limit orders (for buy, sell or short trades), other types, like stop, stop limit and anything with a custom condition are not allowed.
What are the major benefits of after hours trading?
There can be large margins potential in after hours trading
It’s a good opportunity for smaller scale investors to profit from a weaker day’s trading. This is possible when there’s been a rush on either buying or selling of a particular stock near the close of day which temporarily upsets the stock’s stability and triggers a price dip. Off-peak traders can swoop and grab a bargain, making a tidy profit for little effort as things settle down again soon after.
After hours trading can be very convenient
After hours trading is much quieter, so busy people have the luxury of time to make thoughtful decisions on which securities to trade. This is also a huge bonus for less experienced traders of course, who don’t have the pressure daytime trading can bring.
Those living in different time zones to the USA can also take advantage of after hours trading as that period of time between 4 – 8 pm could easily be their own work or leisure time.
Reactive decision making can boost success when involved with after hours trading
Those trading after hours are there on the spot and able to react instantly to any news which affects the market, which can be a huge advantage. For example, it’s common practice for a company to share news of earnings after the main close of play, allowing after hours traders a huge head start over others as they place trades based on this information. This can mean locking down winning positions or dumping losing ones.
After hours trading can incorporate trading strategies
Some traders use trading strategies based around technical analysis strategies, and for them trading signals can be calculated based on after hours prices, which could well be quite different from what they were earlier.
After hours trading can be quite a thrill
If you like the odd edgy experience then after hours trading will definitely help meet that need. Take for instance the fact that market orders don’t work after hours, so you must make use of limit orders – referencing the parameters for how much you are willing to spend to buy a stock, or the price you are willing to sell some for. It’s impossible to know for sure if your order will be fulfilled, which adds another layer of anticipation and excitement to the process of trading after hours.
After hours trading provides you with the chance to experiment
Like anything in life there are tips and guidelines which can help you get the most out of any particular situation, and it’s no different when it comes to after hours trading.
A few tips for success
Find a great broker for after hours trading
To help avoid major catastrophes and get the most out of after hours trading it helps to have a great broker. Great of course, is a relative term, but in this case it can be defined as someone who does actually offer an after hours trading service, has rules that you can understand, agree to, and get along with, and whose fees are not ridiculously high. You also need to be 100% happy with the types of trades you are allowed to do.
Approach after hours trading seriously
Study, learn and analyze the market more often than just before you begin after hours trading. After all, if you are interested in the idea of After Hours Trading it pays to do your homework, and grab all the advice you can from helpful online resources. Don’t be lazy and just wait until you hear the news on a particular day to chance making cash on a reactive market, as religiously reading up on things like economic and employment statistics, national retail sale figures, current GDP stats and so on will give you a much greater chance of success in exploiting the bigger stocks after hours market place.