After Hours Trading Information

If a trader wants to buy or sell stock on a holiday or after the market closes, this is called an after hours trade. After hours trades are infrequent compared to trades during normal hours, but the average dollar value of an after hours trade is larger than one that occurs during the regular session, according to the "Journal of Empirical Finance."

Electronic Communications Networks

Some stock brokers provide access to after hours trading for their clients through electronic communications networks. The stock broker may allow an investor to trade stocks on several electronic communications networks, or limit her to a single network. According to the U.S. Securities and Exchange Commission (SEC), if one investor wants to trade stocks with an investor on another network, the broker must provide access to both networks.

Cost

After hours trading is costly when it is available. There are few bidders because the regular stock market is closed, so there may be a wide gap between prices. For example, if an investor wants to buy a stock at $60, another trader may be willing to sell the stock at $60 during the day, but there may only be a trader who will sell the stock for $65 at night.

Significance

After hours trading allows a trader to react to events that occur in other markets. For example, an investor in an American ship builder may observe the stock of a German ship builder, which trades while the German exchange is open. If traders decide to sell off the stocks of the German ship builder when the American exchange is closed, the investor can sell his shares of the American ship builder before the American exchange opens.

Crossing Session

A stock exchange may offer additional trading hours after the close of the regular session. According to the SEC, a stock exchange may offer a crossing session after hours, which allows traders to buy and sell stocks at the closing price of the regular session so they can settle their books. However, the crossing session is not meant to allow a trader to profit from information he learns after the regular session ends. Additionally, a crossing session typically has a very short duration compared to standard market hours.

References

• U.S. Securities and Exchange Commission: After Hours Trading: Understanding the Risks
• Winona State University; Predicting Stock Volatility Using After-Hours Information: Evidence from the NASDAQ Actively Traded Stocks; Chun-Hung Chen, et al.; March 2011
• "Journal of Empirical Finance"; A Comparison of Trading and Non-Trading Mechanisms For Price Discovery; Michael J. Barclay, et al.; March 2008