After market trading or after hours trading is a trading time where investors can buy and sell securities after normal trading hours. That is, investors can still make trades online after the market closes. These trading hours are limited and have strict rules due to volatility, lack of liquidity, etc.
After hours trading in the United States are between 4:00 PM to 6:00 PM EST.
Stock market hours in the USA
- Pre-market hours: 9:00 AM – 9:30 AM EST
- Normal market hours: 9:30 AM – 4:00 PM EST
- Aftermarket hours: 4:00 PM – 6:00 PM
Benefits of trading during after market/after hours trading
- You can take advantage of news in the stock market such as earning releases since they happen in aftermarket or pre-market hours.
- You can avoid major losses by exiting your positions. For example, you can sell your shares if something happens in the market that could trigger a major selloff the next day.
- You can react to foreign markets actions and trade allocated your assets accordingly
Disadvantages of after market/ after hours trading
After market/ after hours trading activities are not for everyone. You can lose a lot of money very fast if you are not an experienced trader. Below are some of the disadvantages of after market trading.
- Lack of liquidity in the market
- Capturing small gains on a security that has a potential for higher gains in the near future
- High volatility
- It takes longer to fill your orders (sometimes)
- There are more restrictions. Many brokers only let you place limit orders which are hard to fill in low liquid markets
- You face unlinked markets
- You could face bad news in the markets such as bad earning release
- Wider spreads.
- There is not enough trading volume
- Few choices to choose from. If a stock price is not moving, you will not trade it.
If you want to trade in the after hours, you must understand that risks of losing money are exponential.
With high volatility and low liquidity in the market, you could buy shares at higher prices than you wanted or sell them at a big loss.
Earning releases also happen in the after hours trading or pre-market trading hours. You could wreck your portfolio if your company misses on earnings.
