after-hours trading investment & finance definition
The trading of securities after the official close of
a market. The proliferation of Internet trading sites has allowed individuals
to trade after the markets have closed, which once was something only
institutional investors could do. Exchanges may have their own electronic
trading services or traders may use ECNs (electronic communications networks).
However, the liquidity may be limited, which means that the investor may not
receive the best price after hours.
See after-hours trading in Wall Street Words
The trading of securities after the exchanges are closed. After-hours trading often refers to trading a listed security in the over-the-counter market after the exchanges have been closed for the day. This fairly common practice is not illegal. Also called extended-hours trading.
Case Study Research indicates individual investors trading outside normal market hours (9:30
A.M. to 4:00
P.M. EST) can expect to incur increased transaction expenses. The higher expense of after-hours trading stems from reduced liquidity and the resulting larger spreads between bid and ask quotations. For example, a stock that typically trades with a spread of 5¢ to 10¢ during regular market hours might have a spread of 25¢ to 50¢, or even more, in after-hours trading. Actively traded stocks during regular hours often become relatively illiquid in after-hours trading, when few orders are posted and even small transactions can result in large price fluctuations. The potential volatility and lack of liquidity in after-hours trading are likely to result in individual investors paying too high a price when buying stock and receiving too low a price when selling stock.
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