Rules & Regulations for After-Hours Stock Trading
Even though most stock exchanges operate only from 9:30 a.m. to 4 p.m., technology and the Internet have made it possible for after-hours trading (AHT) to occur, thanks to electronic communications networks (ECNs). However, there are different rules and regulations for after-hours stock trading, and before a personal investor should experiment with them, she should thoroughly understand the system so she won't be surprised or alarmed.
Other People Are Reading
-
Function
-
Electronic communications networks act as electronic exchanges after hours, but because they operate in a somewhat gray area, they have different rules and regulations. First, before trading in any after-hours market, make sure that you understand the rules of that particular ECN. Brokerages are all different, and ECNs are all different as well. Certain brokerages will be able to offer lower commissions per trade and other advantages.
Features
-
Electronic communications networks are essentially computerized exchanges, where investors can log in and trade stocks. Orders are matched with their opposites (a buy order for a stock will be offset with another investor's sell order for that stock), and the trade will go though (although, typically, ECNs shield the identity of both traders so that the transaction is anonymous).
-
Warning
-
There are some risks associated with after-hours trading. Firstly, in many ECNs you can view the quotes only from that one trading system. Typically, if you are limited to trading with the quotes from the one system, you may not be able to complete a trade even with another willing investor elsewhere. Secondly, because the volume of after-hours trading is lower, there is less liquidity--trading is more difficult, and some trades may not go through if there is no willing party to trade with. Thirdly, after-hours news stories tend to create price fluctuations, some of which are more severe than usual fluctuations in normal trading.
Benefits
-
There are ways to use after-hours trading to your advantage, if you remember to be wary of the pitfalls. For example, a skilled investor might be able to use the increased volatility of AHT stocks because of low volume to her advantage, even though the lack of volume makes for wider spreads between the asking and bidding prices. Also, international investors can benefit from time-zone differences.
Potential
-
Most economists and other experts believe that after-hours trading is still in its infancy. ECNs are taking steps to share prices with each other, increase trading volume and lower risk and liquidity. Even today, though, after-hours trading has real effects on regular market activity. Pay attention to the price of stocks at the end of after-hours trading, before the markets reopen. The changed stock prices thanks to AHT are likely to affect the behavior of the market as it opens for the coming day.
-
