The Significance of After Market Stock Prices
After-hours trading plays an important role in the stock market today. It gives traders the ability to make trades outside of the regular trading sessions and react instantly to news about their stocks. Although after-hours trading can provide a great opportunity, traders must understand the volatility of stock prices during the after-hours sessions and the risks involved.
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Definition
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The regular session for the major stock exchanges in the United States are 9:30 am to 4:00 pm Eastern time. After hours trading occurs both before and after the regular session. Pre-market trading takes place from 7:00 am to 9:30 am Eastern time. Post-market trading occurs from 4:00 pm to 8:00 pm Eastern time.
Reasons
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Although any stock can trade after hours, the majority of stocks that trade outside of the regular trading session do so as a result of a significant event. Breaking news on a company or product, a merger or an acquisition, the release of a company's quarterly earnings or an analyst's upgrade or downgrade of a company's stock can all lead to active after-hours trading of the stock. When a significant event occurs traders use the after hours sessions to buy or sell the stock and take advantage of the stock's price movement.
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Low Volume and Volatility
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Prices of stocks that trade in the after hours sessions can be very volatile. The after hours sessions typically have very low volume compared to the regular trading session. As a result, prices can fluctuate quickly and dramatically. Since most stocks that trade actively in the after hours sessions are doing so due to a significant event, traders may place trades quickly without fully understanding the long term consequences of the event. When traders realize that they either overreacted or under-reacted to the event the stock price can reverse course.
Warning
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Individuals should trade in the after-hours sessions with extreme caution. As noted, stocks that trade in the after hours sessions can be very volatile. Prices can move several percent within minutes. Although it is tempting to jump in and make a trade after a significant event, it is typically a wise move to spend some time analyzing the event instead of trading on instinct or following the crowd.
After-Hours Quotes
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If you intend to trade stocks in the after hours session you will need access to real time stock quotes because of the rapid price movements that can occur. Most brokerage websites offer their clients real time quotes. Real time quotes can also be found for free on the Internet. Yahoo! Finance and Google Finance are two sites that provide real time quotes for free.
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References
- Photo Credit stock market analysis screenshot image by .shock from Fotolia.com
