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Facts About After-Hours Trading

In the world of online trading there are two completely different definitions of the term “after hours trading.”

The average investor would define after hours trading as the times they place a buy or sell order after the normal close of market ( 4:00 PM EST). The convenience of being able to transact business on your own schedule is one of the best features of an online brokerage account. A word of caution on closing price vs. opening price: The market never really closes. When the New York Stock Exchange (NYSE) and NASDAQ are closing for the day, markets that you have never heard in other parts of the world are opening. Ours is a global economy - what happens in the Japanese market or the European market affects the United States market, add in weather, natural disasters and world politics and much can happen overnight. As an example, you place an order on a share of stock closed at $20.00 on NYSE. An earthquake destroys the company’s main factory that evening. Is it going to open at $20.00 a share? Probably not. Whether that is good news for you would depend if your order were to buy shares or sell the ones you had. When you are doing many of your transactions in the evening – after hours – there are ways to set a price range that you will buy or sell within when you place an order. One way is by placing a limit order. If the price of a stock goes out of your set range the transaction is canceled. This can help to protect your assets in a volatile market. To learn more about limit orders and other types of orders see:

http://www.sec.gov/answers/limit.htm

http://www.sec.gov/answers/orderbd.htm

To a few select investors and some large institutional investors, after hours trading has an entirely different meaning. The term refers to a group of small exchanges with extended hours that have actually been around for many years, but were only open to high net worth and institutional investors. The rise in Electronic Communication Networks, or ECNs, has given everyday investors access to these after hours markets. Just because one can gain access, does not mean it is a good move. These specialized exchanges involve greater risk, less liquidity, greater price volatility and greater competition with professional traders. It is a much more complicated and less transparent market that requires a great deal more expertise than this website can provide. If you are interested, you can start with these publications:

http://www.sec.gov/investor/pubs/afterhours.htm

ttp://www.sec.gov/answers/afterhours.htm



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