After hours stock quotes – Should you do after hours trading?

After hours stock quotes are the quotes of the stocks which are being traded during the hours when the stock market is not open. Usually the market hours are between 9:30am to 4pm Eastern Standard Time. Any trading which is done outside this trading window is called after-hours trading. Till a few years back, after hours trading was allowed only for large institutions and very high net worth individuals. But things have changed in last few years because of the technology available now.

How does after hours trading work?

After hours trading works with the help of a relatively new technology known as Electronic Communications Network (in short ECN). This new technology was developed in late 1990′s and this enables the stock investors to buy or sell stocks without any need of any third party. The orders are displayed, matched and executed automatically.

This method of doing trades online is relatively faster and cheaper since there is no human intervention required. Currently there are many ECNs which are approved to execute trading after hours. To do after hours trading, you just need to have ac online trading account with a stock broker who has ECN facility of its own or ECN access from some other broker. A few famous ECN brokers are ECBroker.com and Instinet.com.

Risks involved in after hours trading

While after hours trading provides opportunities to investors to trade outside the normal window, the investors should be aware of potential risks while trading after hours. In most cases, it is not advisable for individual traders to trade during these hours due to the following reasons:

1. Lack of liquidity – Since the after hours trading volume is very less as compared to normal hours (only about 1%), there is lack of liquidity. In absence of volume, there are chances that the orders are not matched and they remain unexecuted. This also helps the large investors to manipulate the stock prices.

2. Inability to get after hours price quotes – It may be difficult for an investor to get an accurate after hours stock quote therefore making it difficult to know the actual trading price. Some brokers only allow investors to see prices through their own systems which don’t give the complete picture.

3. Competition with professional traders – Most of the trading is done by large institutional investors like mutual funds which have much more information than individual trader. It is often difficult for individual traders to compete with them.

4. Erratic price movements – The stock price movements during after hours trading may not reflect the stock price movement during normal trading window. The after hours stock quote may not predict where the stock price will open e next day as well.

You may want to follow the after hours stock quotes for some time and see how the stock trades for some time in case you want to start trading after ours but generally advised not to trade during after hours.

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