Prices in the Pre and Extended Hours Trading Session may vary from the close or opening of the primary markets during regular trading hours. Also, quotations and transaction prices may vary among different extended hours trading systems.
Orders submitted to Place Trade Financial and entered by Place Trade Financial for the Pre and Extended Hours Trading Session are eligible for a single session only and they cannot be changed to an open order in a regular trading session. If an order is not executed during the Pre or Extended Hours Trading Session for which it was entered, then the order will be automatically canceled.
Only unconditional limit orders on exchange listed and NASDAQ securities are eligible for execution during the Pre and Extended Hours Trading Session.
Not every security is eligible for Pre and Extended hours trading.
Disclosure
How Pre and Extended Hours Trading Differs From Regular Hours
Pre and Extended trading hours are those periods when trades can be placed and potentially executed. The term specifically refers to stock trading outside Wall Street's traditional trading hours of 9:30 a.m. to 4 p.m. ET. After-hours investing involves unique risks that investors should fully understand before placing an order after hours. These risks include, but are not limited to, greater price volatility, less liquidity, and wider bid/ask spreads than during regular market hours. Prior to participating in this unique after-hours session, you should review and be aware of the various risks and requirements involved in after-hours trading. While trading "after hours" is not new, in the past it has been a mostly institutional market with institutional traders working primarily on behalf of banks, insurance companies, mutual funds and pension funds.
Nature of Pre and Extended Hours Trading
A new crop of electronic trading venues, often called electronic communications networks (ECN's) have been developed recently, targeting individual investors who want to trade during nontraditional hours. So far, these systems have not standardized either the way they work or the time periods that they operate.
Since after hours trading for retail customers is still a relatively small market, many brokerage firms staff for the traditional trading hours, with a smaller staff during the Pre and Extended-trading sessions. The availability of customer support staff and other particulars relating to policies and operations during Pre and Extended-trading hours may also be limited, including access to account information and account representatives and support staff (such as margin clerks and cashiers) especially in the event of heavy Internet traffic, phone usage, or system capacity problems.
As mentioned above, there are many different systems currently offering Pre and Extended-hours trading. While NASDAQ began leaving its quotation reporting system running during Pre and Extended hours in October 1999, this simply means quotes are available from the various ECN's. Most brokerages opt to allow customers to make Pre and Extended-hours trades only in the brokerage's designated system.
Most ECN's only allow customers to enter limit orders, meaning that they will only accept orders to buy and sell at a specific price. If a trade can't be consummated at that price, the order will go unfilled. Essentially, the ECN systems simply list orders to buy and sell, and when they detect a match, the system automatically executes the trades. Regardless of whether or not a particular ECN allows market orders or sticks to limit orders only, it is good practice to for investors to place only limit orders, thus protecting themselves somewhat from the wide price swings that might occur in the Pre and Extended-trading session market, where trading volume is lower.
Price Quotes for Pre and Extended Hours Trading
The NASDAQ is already keeping its trade-reporting system running after 4 p.m. ET. NASDAQ consolidates these reports and sells them to market news and quote vendors. NASDAQ strongly recommends that organizations that display Pre and Extended-hours quotes should identify them as such. CNBC, for example, on the streaming ticker on its TV channel, displays after-hours quotes of NASDAQ trades until 6:30 p.m. ET. It shades after-hours trades in gold, to differentiate them from other trades.
Risks of Pre and Extended Hours Trading
The risks of Pre and Extended hours trading include but are not limited to:
- Limited liquidity, Lack of Depth and Breath
Liquidity refers to the ability of market participants to buy and sell securities. Generally, the more orders that are available in a market, the greater the liquidity. Liquidity is important because with greater liquidity it is easier for investors to buy or sell securities, and as a result, investors are more likely to pay or receive a competitive price for securities purchased or sold. There may be lower liquidity in Pre and Extended hours trading as compared to regular market hours. Only specific stocks, or groups of stocks, and other securities will be available for trading in Pre and Extended hours sessions. Not all stocks may be traded during Pre and Extended trading sessions. Trading volume may be lighter than regular trading sessions, resulting in less liquidity for certain securities. As a result, customers may receive partial executions, or no executions at all. - Increased Volatility
Volatility refers to the changes in price that securities undergo when trading. Generally, the higher the volatility of a security, the greater its price swings. There may be greater volatility in Pre and Extended hours trading than in regular market hours. As a result, your order may only be partially executed, or not at all, or you may receive an inferior price in Pre and Extended hours trading than you would during regular market hours. - Inaccurate "Real-time" Quotes
Depending on the Pre and Extended hours trading system or the time of day, the prices displayed on a particular Pre and Extended hours trading system may not reflect the prices in other concurrently operating Pre and Extended hours trading systems dealing in the same securities. There may be multiple, unlinked after hours trading facilities trading the same security. You may receive an inferior price in one Pre and Extended hours trading system than you would in another Pre and Extended hours trading system. Accordingly, "real-time" quotes may or may not reflect the true condition of the market. As a protection, only limit orders should be used in after hours trading. - Wider Than Normal Spreads
The spread refers to the difference in price between what you can buy a security for and what you can sell it for. Lower trading volumes and higher volatility, as well as other characteristics of Pre and Extended hours trading sessions, could result in wider than normal spreads. As a result, customer orders could be executed away from prices that prevailed during regular market sessions, or not be executed at all. - Fragmentation of the Market
There may be multiple, unlinked after hours trading facilities trading the same security but operating independently of one another. Accordingly, investors may pay more or receive less for their securities purchases or sales when trading in a particular after hours trading facility in comparison to the securities primary market or other Pre and Extended hours trading facility. - Impact of News Announcements
Normally, issuers make news announcements that may affect the price of their securities after regular market hours. Similarly, important financial information is frequently announced outside of regular market hours. In Pre and Extended hours trading, these announcements may occur during trading. The impact of news announcements immediately preceding or during an Pre and Extended hours session could cause an exaggerated effect on the market due to fewer market participants, less liquidity, and less trading volume than during regular trading sessions. - If securities have been halted during the regular trading session, such trading halts will continue to be in effect during the after-hours trading session. No trading halts will be initiated by the after-hours trading session itself during the after hours trading session.
- Risk of Changing Prices
The prices of securities traded in Pre and Extended hours trading may not reflect the prices either at the end of regular market hours, or upon the opening the next morning. As a result, you may receive an inferior price in Pre and Extended hours trading than you would during regular market hours. Understand what it means to trade on margin. While practiced by many knowledgeable investors, trading with borrowed funds may result in magnified losses, even to the point of exceeding your initial investment.
Trading may have become as easy as "point and click," but there's still only one way to invest. Investigate before you invest. Be informed. Invest smart.