After-hours trading apps and services aren’t for the lighthearted. If you want to trade after stock markets close, check out this after-hours trading advice:
If you’re just starting out as a stock trader, one of the first things you need to know is when to trade. Stock exchanges are the same as any other marketplace: they have opening and closing hours. Historically, stock exchanges were open only during normal business hours in the US, unless you were a high-net-worth individual or an institutional investor.
But this age of digital, mobile communications has pushed the exchanges to offer everyone the opportunity for trading both pre-market and after hours. After-hours trading has sky rocketed in popularity in recent times, but it has proven to be difficult to master. What’s the best after-hours trading advice you need to know before joining in? We’re here to tell you just that.
Buying stocks outside of regular trading hours can allow traders to get in early on big swoops or stocks. It can be a risky game, granted, but if you know the tricks of the trade, you could work it to your advantage. You could take advantage of brilliant trades before the rest of the trading world is even awake. For example, brilliant advice is given on websites such as TimothySykes.com.
Trading broker rules
After-hours rules aren’t the same as those during normal trading hours, so you need to be careful when you’re hunting for a broker. If after-hours trading is something you need in a broker, make sure you understand their rules, because every broker has different restrictions. You just have to make sure the broker’s rules and restrictions suit your goals.
For instance, many brokers charge an extra fee for after-hours trading. The fee might sound small — such as half a cent per share — but if you’re buying a lot of shares, it adds up. Additionally, you might be limited in the types of trades you can execute. Most allow you to buy, sell, and short stock, but they don’t allow stop orders or conditional trades.
After-hours trading advice basics
If you’re trading big stocks, follow economic indicators. That includes GDP, retail sales, weekly jobless claims and US employment reports (which comes out on the first Friday of every month at 8:30 am Eastern time). It gets tricky, though, for pre-market trading, because most of these economic reports come out around 8:30 am, so there’s not much time to get ahead the market.
Earnings reports come out before the market opens and after it closes. That’s why after-hours trading can be a bit more exciting than the regular 9:30 am to 4 pm business. When these earnings come out they can be a bit of a shock to the stock, with major price movements, while most others aren’t paying attention.
Earnings sessions can be a gold mine. They happen during the 1–2 weeks after the end of each quarter — usually mid-January, April, July and October. You’ll also want to keep up with the news and look for any catalysts that might have been reported the night before — while everyone was sleeping — or early in the morning before normal trading hours start.
Aside from earnings reports and calls, another catalyst for a good time to buy or sell might be a media pump (beware!), a new product launch, or any major change that could spark significant movement in the stock, one way or another.
After-hours trading risks & SEC advice
You do need to consider the potential risks that come with after-hours trading; after all, you are bending the rules a little. For one thing, you’re generally dealing with low liquidity. If you need to close out a position fast, you might not have the option because there aren’t any buyers or sellers, depending on the position you took.
The bid-ask spreads tend to widen during these hours, too, so you might not be able to find stocks that meet your needs. Remember, never trade just to trade. Only buy or short a stock on which you’re pretty sure you can make money.
The US Securities and Exchange Commission outlines some further risks, saying:
“Some firms only allow investors to view quotes from the one trading system the firm uses for after-hours trading. Check with your broker to see whether your firm’s system will permit you to access other quotes on other ECNs.
“But remember that just because you can get quotes on another ECN does not necessarily mean you will be able to trade based on those quotes. You need to ask your firm if it will route your order for execution to the other ECN. If you are limited to the quotes within one system, you may not be able to complete a trade, even with a willing investor, at a different trading system.
“For stocks with limited trading activity, you may find greater price fluctuations than you would have seen during regular trading hours. News stories announced after-hours may have greater impacts on stock prices.
“Many electronic trading systems currently accept only limit orders, where you must enter a price at which you would like your order executed. A limit order ensures you will not pay more than the price you entered or sell for less. If the market moves away from your price, your order will not be executed.
“Check with your broker to see whether orders not executed during the after-hours trading session will be cancelled or whether they will be automatically entered when regular trading hours begin. Similarly, find out if an order you placed during regular hours will carry over to after-hours trading.
“Many of the after-hours traders are professionals with large institutions, such as mutual funds, who may have access to more information than individual investors.
“As with online trading, you may encounter during after-hours delays or failures in getting your order executed, including orders to cancel or change your trades. For some after-hours trades, your order will be routed from your brokerage firm to an electronic trading system. If a computer problem exists at your firm, this may prevent or delay your order from reaching the system.”
In sum
Following these pieces of after-hours trading advice, and also taking heed of the after-hours trading risks will stand you in good steed. After-hours trading is not a practice for those with weak minds and hearts, so make sure you’re ready for the challenge before taking the plunge with trading apps or services.
