The U.S stock market, for instance, is open between 09:30 to 16:00 EST, (excluding holidays). Nevertheless, companies make announcements that influence prices outside these hours. Thus, the intrinsic value of stocks, currencies or commodities continues to move outside the market hours too.
Money traders don’t like to miss out on such movements. They start trading from 04:00 EST in the pre-market hours. Similarly, they trade till 20:00 EST in the post-market session. The latter is what we call ‘after hours’ trading.
So, what exactly can you profit in the after-hours? Let’s try to answer it by listing key advantages.
Key Advantages of After Hour Trading
- Early-bird advantage: You can be the first to take advantage on post market announcements. Fundamental analysis is as significant to trading, just like technical analysis. In the ‘after hours’, you can place orders based on breaking news stories.
- Appealing prices: Moreover you stand a good chance at getting better prices, before they are driven up or down. Before the inflow of greater volume, you have more control on the asset prices. Once a rally or crash has happened, you got no say on pricing.
- Convenient times: You can use the extra hours to your convenience. Additionally, you get a chance to trade during off-peak times. If it better suits your lifestyle, why should you miss those valuable hours? You can do your 9 to 5 and trade as well.
The path is not all rosy, when it comes to trading outside the market hours. While, there are clear benefits of trading the ‘after hours’, you should consider these downsides as well.
- Low liquidity: The level of volume tends to be low in the post market hours. Order execution rates can be unappealing to the average trader. The amount of trades that take place is substantially lesser.
- Wider spreads: As a result of lower trading volume, the spreads can get higher. It puts an unnecessary burden on your trade right away. Inherently, it leads to higher volatility.
- Uncertain prices: You can never be sure about the prices. The stock or CFD can rally till the pre-market hours. Cometh the market hours, traders may react unfavorably.
- Institutional level challenge: You are competing against players who bring huge investments. To an extent, they start dictating the price chart. They will be commonly active in the after-hours market.
To be safe, it’s best to react only on authoritative news sources. Wait for announcements from strong governments or Fortune 50 companies. Additionally, involve yourself in communities who actively operate in after-hours trading. This is purely a knowledge based profit system. You are responsible for verifying the news stories you receive. Ask your broker to give you text alerts on happening stories in finance.
When you are trading the after hours, you are restricted to limit orders. Your trades are going to be placed on an electronic trading system, rather than going to the exchange. Consider, X wants to sell 100 shares for a certain price and Y wants to buy it at mentioned price. Both X and Y will be linked up and the exchange will take place.