After-hours trading (also called "extended hours trading") refers to the trading of securities after the exchanges close. The New York Stock Exchange, for example, operates from 9:30 a.m. to 4:00 p.m. Eastern Standard Time and closes over the weekend and during holidays, according to the NYSE. Trades that occur outside those times are part of after-hours trading.
Methods of After-Hours Trading
Prior to the Internet, trading was limited to the hours during which the major exchanges remained open. The Internet facilitated the launch of electronic communication networks (ECNs) so that investors could trade from their home computers.
Many ECNs limit their users to the viewing quotes available on their specific services. In other words, you can't view the entire marketplace. This is why investors frequently utilize multiple ECNs to maximize their opportunities.
Benefits of After-Hours Trading
Developments in stocks and companies arise at all hours of the day and night. Investors who keep track of these changes can jump on new developments and take advantage of available shares.
Additionally, you might notice small fluctuations in lesser-known companies. Investors with lower risk aversion can take advantage of these opportunities because the larger investment groups are not interested in them.
Drawbacks of After-Hours Trading
Even with the availability of ECNs, fewer people trade stocks after the exchanges close. Consequently, the decreased trading volume reduces the potential for liquidating stock.
The majority of after-hours traders are large investment groups and organizations. Individual investors find it difficult to compete against such entities, which results in fewer opportunities to capitalize on market changes.
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