Q:

What are the risks of after-hours trading when investing online?

A:

Quick Answer

The risks of after-hours trading online arise from conditions that are more prevalent after market closings, including not being able to see or act on quotes; volatile prices; and competition with professional traders, states the U.S. Securities and Exchange Commission. Other risky conditions are lack of liquidity and computer delays.

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Full Answer

When trading after hours, investors often only have access to quotes from a single trading system, but even when they have access to other systems, some firms do not guarantee trading based on other quotes, creating a handicap. Because of the way closing prices and the following day's opening prices are calibrated, after-hours investors cannot be sure they are getting the most favorable price, explains the Securities and Exchange Commission.

The volatility of these prices are more extreme for stocks with limited volumes of activity. After-hours investors are also in competition with expert traders from major institutions such as mutual funds, notes the Securities and Exchange Commission. These traders likely have access to much more information about stocks. The ability to quickly convert stocks into cash is more limited after hours because of the lower volume of trading. This limited liquidity further hampers the after-hours investor. Computer issues or problems in executing orders are more likely to take longer to correct than during regular hours, making for longer delays and greater likelihood of disruptions after hours.

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