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| After-Hours Trading |
The New York Stock Exchange (NYSE) and NASDAQ have traditionally been open for business from 9:30AM to 4:00PM EST (Eastern Standard Time). Although "after-hours" trading has occurred since 1975, it has been limited to mostly institutional investors and high net worth individuals for the purposes of block trading. But beginning in 1999, individual investors also gained access to Electronic Communication Networks (ECNs), the trading venues that display, matches, and execute after-hours trade orders. Since then, an increasing number of broker-dealers have begun to offer their retail customers the same opportunity for extended trading. The after-hours session now affords retail investors some of the same flexibility that institutions and professional traders have enjoyed for years.
Some of the brokerage firms that offer after-hours trading include:
Ameritrade (via Island ECN)
Hours: 8:00AM to 8:00PM EST; limit orders only during extended hours.
E*Trade (via Archipelago ECN)
Hours: 8:00AM to 8:00PM EST; limit orders only during extended hours. Note that
extended-hours orders can be placed even during regular market hours; these
orders may be filled during normal or extended-trading hours.
Fidelity (via Redibook)
Hours: 7:30AM to 9:15AM and 4:15PM to 8:00PM EST; restrictions on order types.
Harris Direct (via Redibook ECN)
Hours: 8:00AM to 9:15AM and 4:15PM to 7:00PM EST; limit orders only; round lots.
Schwab (via Redibook ECN)
Hours: 7:30AM to 9:15AM and 4:15PM to 8:00PM EST; limit orders only.
T.D. Waterhouse (via Archipelago ECN)
Hours: 4:30PM to 8:00PM EST
As the after-hours market has begun to mature, both the established markets and the ECNs have sought to provide inventive means, methods and systems to meet investor demands. Because it offers investors greater flexibility in the timing of their trades, the after-hours session is likely to continue to evolve into a highly organized and active marketplace. But while this venue offers investors an attractive alternative for additional trading opportunities, there are also risks that should be considered. These include:
Restricted Access to ECNs
Some brokerage firms will only display quotes from, and route orders to, a
single ECN. If investors are limited to one electronic communications network,
then they may not be able to complete a trade at a different network (even when
a match is possible). It is important for investors to confirm with their
brokers that quotes can be accessed from--and orders routed to--multiple ECNs in
order to obtain the best execution.
Liquidity, which is dependent on the existence of buyers and sellers, is defined
as the investor�s ability to quickly convert an asset into cash. Stocks that
trade in the after-hours market may sometimes have a lower trading volume than
in the daily sessions (in other words, lower liquidity), making trade execution
difficult.
Price Volatility
Assets with low trading volumes are sometimes susceptible to wild price
fluctuations during the after-hours session. In a low-volume trading
environment, significant late-breaking news often upsets the balance of supply
and demand, thus creating an environment of unusual price volatility. When
companies report important news after the close of the regular trading session,
such information can have a greater impact on stock prices in the after-hours
marketplace. Companies have historically made announcements following the close
of regular daily trading sessions in order to allow the investing public time to
assimilate and reflect upon the information and to avoid price volatility in the
marketplace.
Imprecise Pricing
The pricing of some stocks that trade in the after-hours market may or may not
reflect the prices of that same security during the regular trading session,
either at the end of the regular trading session or upon the opening of regular
trading the following business day. Securities often open during traditional
market hours at a price much different from the closing price of the previous
day's after-hours session.
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No Common Reporting System
Unlike the NASDAQ and the NYSE (New York Stock Exchange), ECNs do not offer
universal reporting arrangements. Thus, the price and volume of a security on
one ECN may differ from the prices offered by among its competitors.
Limit Orders Only
Many ECNs only accept limit orders. These stipulate that an investor must enter
his or her order to buy or sell at a specific price. If the order is not
executed during the after-hours session, then some firms will cancel the order.
Meanwhile, others will automatically re-enter the limit order for the regular
trading session. It is important that the investor inquire as to the specific
after-hours practices of his or her firm prior to trading.
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