What does after-hours trading mean for the stock market?
I always thought you could only trade between 10 a.m. and 4 p.m., but the practice of buying and selling stocks after official trading hours is a relatively recent phenomenon.
According to Investing Online, after-hours trading was restricted to big-block trading between major institutional players and high-net-worth individuals. The emergence of electronic communications networks, or ECNs, in the late 1990s opened after-hour trading to individual investors.
After-hours trading is essentially a limited and somewhat riskier version of trading during traditional business hours. As The Investment FAQ explains, most of the after-hour networks operate as crossing markets -- buy and sell orders are processed only if they can be matched exactly.
Why is after-hours trading riskier to the private trader? The U.S. Securities and Exchange Commission points out that bulk trades result in more volatility, or price variations between bids and actual prices. Also, the restricted nature of the trading may mean you don't get the best price for your bid.
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