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Some experienced investors think that after-hours trading brings significant benefits. While others are of the view that after-hours trading is nothing but just a risky investment. So, the real question is: should after-hours trading be part of your stock market strategy? Is it too dangerous?

For those who are unaware, after-hours trading starts after 4 P.M when the stock market closes. Moreover, the trading session remains open until 8 P.M. Also, during these hours, investors and traders can trade through electronic communication networks (ECNs).

However, to evaluate if after-hours trading should be part of your stock market strategy, it is essential to understand it’s advantages and disadvantages. So, let’s take a look at some of them.

Timely Decision

After-hours trading occurs due to the organization’s related news break after the closing of the stock exchange. Moreover, such news or events create a spark amongst traders and investors.

In this situation, the after-hours trading session proves to be highly helpful for them. They make effective decisions regarding stock investments. Moreover, in this way, stock exchanges remain active during after-hours trading even after the closing of their official opening hours.

Stock Price

The after-hours market functions in the same way as the pre-hours and the regular market sessions. In other words, shares are traded between parties at an agreed-upon price.

Moreover, after the official hours of stock exchanges, the volume of the trading thins out. Thus, it leaves a profound impact on stock prices. Also, the bid and the ask prices are profoundly affected due to fewer shares trading.

Further, in the after-hours market, you may only see prices from one venue. Furthermore, these may not reflect the prices displayed in other electronic trading systems for the same security. In other words, the amount you will receive is the price that someone in the after-hours or pre-market is willing to pay.

Risky and Fluctuating Prices

Stock exchanges face a fall during after-hours. Also, the trading volume thins out. The reason behind this fall is people’s intention not to participate once the official hours end.

Moreover, most investors and traders are of the view that it is always risky to invest during after-hours. Also, the pricing of stock assets during the after-hours session may never reflect the real trading value. In such a situation, investment in stocks or selling your stock assets may bring significant loss to you.

Lower Liquidity

Usually, the volume of the stock remains thin after the official hours of the stock exchange. However, due to the release of exclusive news regarding stocks, the amount of trading may spike.

Further, investors avoid investing because several risks are associated with buying and selling during the after-hours trading session. During these hours, the entire trading depends on the bid of the investors. For example, if the investor bid higher, you can enjoy the great profit.

On the contrary, if the investors are not bidding high, you may face a loss. Similarly, when you are investing in the market, the asking prices of the seller may vary. Thus, bidding and asking rates affect the actual stock prices in the market. Also, as the volume of the stock trading thinks out, so some of the stock remain inactive.

Impossible Prediction

Predicting what the stock values during the after-hours trading session will be is something you should not be doing. It is impossible to predict.

Moreover, the stock market after the official hours fluctuates as per the bid and ask rate of the investors and sellers. You can never predict the actual value of the stock during pre-market hours. More importantly, if you are new to the stock market, you should avoid investing money during extended-hours.

Standard Market vs. Extended-Hours Sessions

Standard Market

Pre-Market and After Hours Trading

Orders can be placed between 9:30 a.m. and 4:00 p.m. ET

Pre-Market: Orders can be placed between 8:05 p.m. (previous trading day) and 9:25 a.m. ET. They will be eligible for execution between 7:00 a.m. and 9:25 a.m. ET

After-Hours: Orders can be placed between 4:05 p.m. and 8:00 p.m.

All order sizes are accepted

The maximum quantity on a single order is 25,000 shares

Trading primarily occurs on exchanges and NASDAQ through a variety of venues, including ECNs and market makers.

Trading occurs through a leading electronic market

Many order types and restrictions are accepted. For example, market, limit, stop-limit, all-or-none, etc.

Only limit orders for the particular extended-hours session are accepted

Many security types are available, including stocks, options, bonds, mutual funds, etc.

Most listed and NASDAQ securities are available in the extended-hours session.

Different time limits are available. For example, Day, GTC, IOC, and FOK

All orders are only good for the particular session in which they are placed

In general, higher trading activity means more liquidity and a greater likelihood of order execution

Lower trading activity may result in a lower possibility of order execution, wider spreads, and more significant price fluctuation

The quotes you receive are consolidated and represent the best available prices across all trading venues.

Market makers and specialists work to ensure customers get the best buy or sell prices displayed on NASDAQ and the exchanges

Quotes are not consolidated and represent the current prices available through the Electronic Market.

As a participant in the Extended Hours Trading Network, the Electronic Market may also offer access to prices available on other participating Electronic Markets, but not necessarily all venues open for EHT.


Bottom Line

Given all the facts mentioned so far, should after-hours trading be a part of your stock market strategy?’ With the above analysis, my answer will be a big ‘NO.’ The reason behind this ‘NO’ is that you can never predict the actual value of stocks during after-hours. In other words, the risks are too high.

Moreover, some expert traders do not purchase stock during after-hours, even after the release of exclusive news. They find it risky to invest during this session and wait for the morning. That is why the stock exchanges show a rise after 9 A.M.

However, this decision is entirely up to you. So, I would recommend you to study the market before you give after-hours trading a try.

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