If you’re wondering, “what is after-hour trading,” here is a brief overview.
Traditionally the hours for the stock market have been between 9:30 a.m. -4 p.m Monday through Friday except for a few holidays. In the early ’90s, things changed and larger financial institutions and individuals with extremely deep pockets were allowed to trade after hours online. Eventually, after-hours trading was opened up to anyone who wanted to use it.
The Electronic Communications Network, or ECN’s, is what has made it possible for investors to make trades after the stock market has closed. This is all done over the internet. If you want to make trades after hours you will need to have a broker working for you whose firm has an ECN. Not all ECN’s are regulated by the exchanges. The role of the brokers is to use their ECN to match your order with another investor who wants to sell. If there are no takers, your order will be posted and hopefully, there will be a seller that is interested.
Here are the basic steps you will need to follow to start trading after hours:
1. Find a brokerage firm that has after hour trading and open an account with them. It’s important that you fully understand all the fees associated with any trades you may make, and many brokerage firms will have a minimum amount required for opening an account. All firms will also have specific rules for after-hour trading so make sure you find out all the ins and outs before you get started.
2. Once you’ve opened your account, you will need to make sure it is funded. While you can put as much in it as you like, per the brokerage house’s rules at least, you will more than likely have a minimum amount requirement.
3. Take some time to find which stocks you want to trade. It’s important that you learn how to properly research stocks before you start risking your money. There are a lot of places that can teach you the basics of stock market investing, this is a very valuable education and not something you want to skimp on.
4. Make sure you know exactly what you want to pay for the stock, or what you want to get for it if you are selling before you place your orders. Most after-hours markets only allow limit orders (which means that you have to specify the exact price you are willing to take).
5. Place your market trade. Once you’ve set up your exact price, you can place your order on the brokerage firm’s ECN.
6. You will receive an order acceptance by a member of the ECN who wants to buy or sell the same stock you are looking for.
7. If your trade was successful, you will receive a receipt informing you of that fact.
I hope this brief tutorial on what is after hour trading has clarified things for you at least a little. Just remember, that the after-hours market isn’t as closely regulated as the regular market and it could lead to problems. Be very careful and make sure you understand the rules and fee schedules before you risk your hard-earned money.