I finance
IF: BlackBelly
,
from Wireless Giant'
What Is After-Hours
Trading All About?
I
ndividual investors once could
limit (or even bar) your ability to see
only buy and sell stocks during
quotes on other networks and will only
the regular business hours of
post your order to the ECN you are on.
major stock exchanges. In the U.S.
markets, regu-
The Risks
lar business
After-hours trading can be a risky
hours are typi-
environment that is ill-suited to many
cally defined as investors.
9:30 a.m. to 4
To a large extent, the after-hours
p.m.
marketplace is a news-driven market.
Trading
In many instances, there are fewer
before and
active participants to react to and
after regular
digest the news being released from
exchange hours public companies and other sources.
1
became avail-
With fewer investors participating in
Norton Stern
able in the
this marketplace, securities have less
Columnist
1990s for major "liquidity" which, among other things,
institutional
can mean larger spreads between
players and for high-net-worth indi-
bid-and-ask prices. Investors who are
viduals.
unfamiliar with the
The rise of online
workings of limit
Investors can be
investing in the late
orders find them-
1990s led to the
whipsawed by greater selves handicapped
demand from a wider
in the ECN market-
price volatility in the
range of individual
place.
investors for "after-
Additionally,
after-hours market
hours" trading.
depending on your
than during regular
brokerage firm
How It Works
and how they have
exchange hours.
Electronic commu-
implemented their
nication networks
after-hours trading
— ECNs — do not
session, the market
operate during the same hours or even centers that your orders can interact
under the same rules as the traditional with may not include all possible
markets. Most ECNs are affiliated with
execution venues. As a result, your
online brokerage firms and have their
order may not be executed at the most
own rules.
favorable price available among all the
Some ECNs accept only "limit
market participants. There also exists
orders" under which you specify a
the possibility that your order may not
price at which you want to buy or sell.
get executed at all.
If the ECN can make a match with
Since large institutions often play
another investor, your trade is execut-
a bigger role in moving stock prices
ed. If not, the trade may be posted to
up and down in the thinly traded
the ECN limit order book or if the ECN ECN environment, investors can find
has links to other market centers and
themselves whipsawed by even more
those centers are actively participating price volatility in the after-hours
in the after-hours session, the order
market than is the case during regular
could be routed to that alternative
exchange hours.
market center for execution.
In short, the after-hours trading
Some ECNs now permit "market
market is no place for amateurs! ❑
orders" under which you simply
indicate that you want to buy or sell
Norton Stern is a registered principal with
a stock. However, the risks involved
Franklin Financial Investments, Southfield.
in after-hours trading make it a good
(248) 262-8810. Investments are offered
idea to only use limit orders.
through Wachovia Securities Financial
One major difference between
Network, LLC. This informational material
regular and after-hours trading is how
is not a solicitation of an offer to buy any
much of the marketplace you can see
security or instrument or to participate in
when you place your order. Some ECNs any trading strategy.
only at the
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