Learn to Invest
Extended Hours Trading

We live in a world where nearly everything is available 24/7.

So why not trade stocks around the clock too?

The truth is, you absolutely can. Trouble is, there are risks and dangers you need to be aware of first.

The New York Stock Exchange and NASDAQ are both open from 9:30 a.m. to 4:00 p.m. EST. During these hours, it’s business as usual. Liquidity is high and spreads are low.

But when the lights go down in the city, things change. After hours, you’ll find:

Less Liquidity – Sure, you may be in the mood to sell 100 shares of Starbucks (SBUX) at 2 a.m., but there may not be anyone in the mood to buy it at that hour. When there are fewer players in the game, you may have a harder time meeting your match in the markets.

Wider spreads – Fewer players means less trading volume. That leads to wider bid-ask spreads, and market prices may not come anywhere near what you’re looking to pay.

Higher Volatility – If a company announces some hot news after market, demand in the stock could increase to a point where it overwhelms the number of after hours traders who want to sell that same stock. As a result, share prices will spike dramatically. Then, once the market opens and more sellers show up to the party, the stock price could just as quickly tumble back to a fair level.

That doesn’t sound very fun…

It’s not all bad, of course! Here’s a great way to utilize after hours trading data:

Think of it as a leading indicator for next trading-day activity in the stocks you own. Chances are if a stock makes big moves overnight, it will continue in the same direction the next day.

If you absolutely must have your fingers in the pie 24/7, then make sure to enter a limit order whenever you trade after hours. This will protect you from any wildly erratic price swings.

But, hey, the time between 4:00 p.m. and 9:30 a.m. EST is a good chunk of time to reflect, research and consider your strategy.

So in this case, we suggest going with the crowd and trading when the rest of the world is active, too.

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