Traders are always on the hunt for an extra edge. Sometimes, the right choice of online trading brokers can help.
Access to after hours trading is now available to the masses. It was once reserved for institutions and high net worth investors. This new flexibility introduces the question:
Which online trading brokers allow after-hours trading?
It’s a great question. The short answer is that most brokers do. So there’s little reason to limit the scope of your trading operations to regular trading hours.
Setting up after-hours trading at your broker can be as simple as checking off a box. They ask for this because they usually want traders to make a conscious decision. The setting in your online broker’s software should look something like this:
 Fill outside regular trading hours
The commissions stay the same. Yet, commissions are only one of the many considerations in trading.
We want you to have all the most important information. So in this article, we’ll cover the top three must-know facts about brokers and after-hours trading.
Online Trading Brokers – Fact #1: The spreads can cost you
One characteristic of after-hours trading is a significant reduction in liquidity. With fewer market participants, there is less competition. Less competition leads to wider spreads.
Wider spreads can affect you, the trader, because they add to the cost of your trading operations. A stock that has only a penny spread while the market is open may have an after-hours spread of 4 pennies.
Here’s how that works. During regular hours, the bid / ask spread can be minimal. The highest price someone is willing to pay is only one penny below the lowest price someone is willing to sell.
The two are never the same. This is because a trade would occur if someone were ready to buy at the same price another was willing to sell.
Trading during regular hours means that, if everything else is constant, you could buy a stock at the ask. If you change your mind you can immediately sell at the bid. The costs would be commissions plus the 1 penny spread multiplied by the shares you traded.
Now think about the same situation after hours where the spread is much larger. In this example, let’s use 4 pennies. Now the cost of changing your mind is commissions plus the 4 penny spread.
In this example, that’s a 400% increase in the cost of your trading operation. It could be even greater than that with a wider spread.
Online Trading Brokers – Fact #2: You need to ask yourself why you’re doing it
Trader motivation is a key consideration in uncovering the role of after-hours trading. There is a diverse set of possibilities including traders who:
- Feel like they do not have a choice because they cannot trade during regular trading hours.
- Think that there is a hidden benefit to trading after-hours.
- Only want to because they were unable to do so in the past.
- Believe there is a better opportunity to open or close trades before the market opening.
The list goes on.
“There are many good and not-so-good reasons to trade after hours. Find out what yours are.”
But the important question to answer is:
What is YOUR motivation for wanting to trade after hours?
Answering this question for yourself can be a revealing exercise. Ensure that the benefits you get offset the extra costs. And remember that low liquidity and larger spreads increase your risk.
Online Trading Brokers – Fact #3: Some markets trade all hours anyway
Some markets are not as constrained by certain times of the day the way the stock market is.
Forex and futures markets have much longer hours. They do not have after hours because they are either open or closed. Most consider them to be 24-hour markets.
Yet, a 24-hour market is no guarantee of liquidity. Trading volume of Forex pairs show that certain hours experience greater trading activity.
The same observation is true for the commodity futures market. To a large degree those high volume hours mirror the stock market.
Traders who ask themselves higher quality questions get better answers. Some traders find that if the motivation to trade after hours is due to scheduling issues. This conflict usually occurs when a trader also has a day job.
Unless there is a true trading opportunity, trading stocks after the close is not optimal. Investigating both futures and Forex markets may be an excellent alternative. However, futures and Forex markets may have low liquidity at these times. It pays to do your research and know the spread and liquidity of the after hours market you want to trade.
The ability to trade stocks in the after-hours session can be an asset. It offers the ability to trade based on new information released after the market close.
Trading after hours may allow traders to achieve better prices. But there is no guarantee that those prices will be favorable compared to the regular hours.
Traders can also expand their trading range. They may find opportunities in futures and Forex markets. These markets trade for much longer hours than stocks. This can serve traders who cannot trade during regular hours for stocks.
For more day trading techniques, tools & strategies, check out these articles:
- How Do Margin Trading Accounts Work?
- 13 Essential Day Trading Tools For Success
- 3 Best Online Trader Training Methods
Trade after hours or shift to a different market with different hours. It’s your choice and the flexibility exists. Either way, always remember to plan your trade, trade your plan and always stay safe.
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