After Hours Stock Trading

It used to be that only the high end investor was involved in after hours stock trading, but it is now available to other investors. Each brokerage handles this type of trading in their own way with their own set of services so an investor should find out how theirs works before beginning. Additionally, since there are different risks involved with after hours trading, one should also discuss these with their broker.

There are a number of differences between after hours trading and conducting trades during stock exchange hours.

  • Viewing and Availability of Quotes – A brokerage will use one trading system for after hours trades and you may be limited to just what is available on the system both for viewing and for making trades. This can limit your ability to complete a trade when shares are listed on a different system.
  • Quote Spreads – The spread between bid and ask is going to be higher on an after hours trading system due to the reduced volume that occurs after hours.
  • Liquidity – Also due to the reduced volume after hours there is an issue with liquidity – less buyers available means less chance to sell your stock after hours.
  • Delays – Transactions are being routed from your brokerage through the trading system which can result in order delays which can sometimes be significant.
  • Prices – Pricing after hours is often different than they are during regular hours.
  • Competition – Trading after hours puts the small investor into the fray with the professionals and large investors that often do after hours trading.
  • Limit Orders – Many systems only allow limit orders for after hours trading. Depending on your brokerage’s policy, unfilled orders may be cancelled or may carry over.
  • News – After hours trading enables the investor to take advantage of breaking news and new information more quickly.

Choosing a broker for this type of trading is a bit different than it is for other trades, and it is not uncommon for investors to pull some of their portfolio into a different account to be able to affect after hours trading in a more advantageous setting. A few of the brokers that offer ECN access are as follows:

  • Ameritrade
  • E*Trade
  • Fidelity
  • Schwab
  • Harris Direct
  • T.D. Waterhouse

The different brokers will hold their after hours trading during specific times so be sure to review the trading times before settling on an account.