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What are the advantages and disadvantages of after-hours stock trading?

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Quick Answer

Prices tend to be much more volatile during after-hours trading, which can be challenging to many traders, according to Investopedia. For those who are experienced, this volatility can be used to generate higher profits. The market also has considerably fewer traders than are present in normal hours.

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What are the advantages and disadvantages of after-hours stock trading?
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Full Answer

The New York Stock Exchange and the Nasdaq National Market, two of the largest stock exchanges in the country, operate regular hours from 9:30 a.m. until 4 p.m. EST, notes Investopedia. With the advent of online trading, after-hours trading has become an option for all investors, both large firms and individuals. These investors use electronic communication networks that allow them to interact electronically and anonymously. However, the market has far less active traders after hours, and thus less liquidity, and since there are fewer people looking for trades at that time, large spreads between bid and ask prices are common. This makes it difficult for people on both ends to trade stocks for favorable prices.

Additionally, those individuals interested in after-hours trading have to compete with large institutions, who are now able to operate anonymously. This lack of small investors often disadvantages those without the large financial resources of corporations, according to Investopedia.

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