What Is the Purpose of After Hours Trading?
In the United States, most regular securities and commodities exchanges are open only on weekdays from 9:30 a.m. to 4 p.m. However, beginning in the late 1990s, with the advent of the internet, many investor trade outside these hours, in a practice called "after hours trading."
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Function
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After hours trading is meant to allow investors to continue to conduct business even when exchanges are not in operation. Often, the value of a company or commodity can be affected by events that occur in the evening or weekends. Investors may not wish for markets to formally open to act on this news.
Considerations
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According to the U.S. Securities and Exchange Commission, after hours trading carries a number of risks. These include a lack of liquidity, more price volatility and larger quote spreads. Also, the prices quoted after hours may not match those floated during regular trading, when the entire market gets to provide input on an asset's worth.
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Expert Insight
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According to Chris Concannon, an executive vice president with NASDAQ, "The intrinsic value of a stock is constantly moving whether the market is open or not, and people want to access the market when the intrinsic value is changing." Thus, investors resort to after hours trading.
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References
- Photo Credit Housing Market Boom image by Paul Heasman from Fotolia.com
