“After Hours Trading” aka “After Hours Market” refers to the buying and selling of securities on major exchanges outside of specified regular trading hours. Most of the major stock exchanges including New York Stock Exchange and the Nasdaq National Market have operational duration from 9:30 a.m. to 4:00 p.m. EST
Before the introduction of AHT, stock market used to have a specific starting and closing time, before and after which trading was not allowed. AHT was limited to institutional investor and individuals with high net worth at the time of introduction but now is an option for average investors as well.
NASDAQ National Market and Listed Securities have the option of extended hours trading on normal market days and half-day market holiday. With AHT, Pre-market hours available for trading are 6 am to 9:28 am ET. After-Hours trading is available from 4:02 pm to 8 pm ET on normal market day and from 1:02 pm to 5 pm ET on any half-day market holiday.
Great is the gain, higher is the risk- this statement is quite true in this case. The development of AHT offers investors the possibility of great gains, but also has some inherent risks and dangers:
- Reduced liquidity – The number for buyers and sellers is high during regular hours which falls considerably during AHT which makes conversion of shares to cash harder.
- Wide spreads – A reduction in volume of trading may result in a wide spread between bid and asking prices. Therefore, it makes executing order harder for individuals at favourable prices.
- Increased competition – Even though individual investors now have the ability to trade in an after-hours market, the bitter truth is that they will be competing against large institutional investors.
- Volatility – Investors are likely to experience severe price fluctuations in AHT.