After hours stock market trading

The birth of the concept of After hours stock market trading took place in 1999. It was thanks to this concept that the famous Wall Street became a 24- hour marketplace. But do you know anything about After hours stock market trading? Well, let me elaborate.

In general, the New York Stock Exchange and NASDAQ open at 9:30 am in the morning and close at 4:00 pm in the evening (Eastern time). So this means that after 4:00 pm no trading is allowed. Actually no trading takes place after the clocks ticks 4. But there is a blip here. For certain high net worth investors and institutional investors, trading is allowed even after the market is closed. This is known as After hours stock market trading.

So why was the concept of After hours stock market trading developed? Well, this form of trading provides a viable investment opportunity as you are dealing in stocks after the trading of the stocks has stopped. So, if you think that a certain stock that you possess is going to depreciate as soon as the market opens, then you can sell it off in After hours stock market trading. On the other hand, if you think a stock is going to appreciate the next morning, you can buy it during the After hours trading period. Thus, the After hours stock market trading is a good indicator of how the stock market position will be on the next day. Even though this facility of After hours stock market trading was opened up for individual traders in 1999 itself, it has not gained the amount of popularity that it was expected to.

In After hours trading, you do not get the freedom to get quotes from various sources. Most of the brokerage firms use only a single trading system for After hours stock trading. Hence, unlike day time when these firms have access to a number of sources to get the stock updates, such a liberty is not available in After hours trading.

Also, the number of investors opting for After hours trading is very low. Such low numbers are a big hindrance in the trading of many stocks. Sometimes such small quantity of stocks is not available for sale as well. This means stock is not as liquid as they are during the day, when you can sell them in a crowded marketplace.

Thirdly, the supply and demand for stocks in the After hours is pretty low. Due to this the equilibrium point shifts and you end up paying more for a particular stock as it is not readily available during after hours.

The biggest disadvantage of this kind of trading is the practice of brokerage firms to place limit orders. So if you want to trade stocks with these firms, you will have to enter a price of the trade in advance. Thus, during after hours, you have to buy and sell the stock at the same price. This can sometimes be very disadvantageous for you as an investor.

Hence After hours trading is not a fancy option for many. But still if you are interested a suggestion is to indulge in trading in the first hour after the close of the market.