This week has seen a particularly high amount of volume in after-hours trading. The likes of Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), and Microsoft (NASDAQ:MSFT) all announced their respective earnings reports this week after market close, causing a huge spike in activity. Let's take you through what is after-hours trading and some of the risks that it carries.
We live in a world where nearly everything is available 24/7.
So why not trade stocks around the clock too?
The truth is, you absolutely can. Trouble is, there are risks and dangers you need to be aware of first.
The New York Stock Exchange and NASDAQ are both open from 9:30 a.m. to 4:00 p.m. EST. During these hours, it's business as usual. Liquidity is high and spreads are low.
But when the lights go down in the city, things change. After hours, you'll find:
That doesn't sound very fun...
It's not all bad, of course! Here's a great way to utilize after-hours trading data:
Think of it as a leading indicator for the next trading-day activity in the stocks you own. Chances are if a stock makes big moves overnight, it will continue in the same direction the next day.
If you absolutely must have your fingers in the pie 24/7, then make sure to enter a limit order whenever you trade after hours. This will protect you from any wildly erratic price swings.
But, hey, the time between 4:00 p.m. and 9:30 a.m. EST is a good chunk of time to reflect, research and consider your strategy.
So in this case, we suggest going with the crowd and trading when the rest of the world is active, too.
If you want to learn more about investing, check out the following articles:
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in the companies mentioned above. Read our full disclosure policy here.
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