Is it better to trade after-hours?

After-hours trading or AHT is a concept introduced in 2000 which refers to trading before and after the standard trading hours. Buying and selling securities on major stock indices in the US regularly starts 9:30 am and ends at 4:00 pm Eastern Standard Time. If you trade AHT, it means that you trade either early in the morning before the market officially starts and late at night after local markets have closed.

 

Trading outside of the standard time was originally allowed only for large institutions and individual traders that have high net worth. The introduction of the electronic communications network or ECN changed that. Today, the average trader can also participate during this lucrative time.

 

Now, after-hours trading soared to popularity because of the opportunities it presents. Essentially, the market can be traded 24 hours because markets around the world open . When one market closes, another one opens in the other side of the world. AHT ideally gives its participants the chance for larger profits because traders can react much faster to market events compared to day traders who are still asleep.

 

However, the appeal of AHT apparently ends there. The time outside standard trading hours is full of disadvantages. Trading volume is low because most of the people in your local market are asleep. You may get stuck in a position due to low volume as well. Competition can be tough because you are going up against the original players of AHT: large institutions and high net-worth traders. Lastly, there is significantly less liquidity due fewer shares that are available for trading.

With the slew of risks involved in AHT, it’s no wonder only the really gutsy participate in it. So is it better to trade after-hours? You be the judge.