Stock (CEF/ETF) trading after hours

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I have never traded after hours. My question is what are pros and cons of trading during normal hours (9:30-4:00) and after hours? 

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The bid/ask spread is wider and gets wider as the evening wears on. So you have to be willing to pay more to do the trade. I've also found it very hard to place a limit order on the book and have someone trade against it--you almost always have to cross the spread. Usually if you place a limit order, the after hours market maker will just pip you so that you're not the best quote anymore.

You also typically have to go through extra steps to make it a valid order (e.g. switch to EXT instead of DAY), so it can be easy to send an order that never has a chance to trade. You simply have to be more careful.

traderranger said:   I have never traded after hours. 
  If you have to ask, you probably should keep it this way.  

Most instruments are like the prices at Amazon or Costco during regular hours. During the pre/postmarket hours you're trading at the corner bodega. With maybe an exception carved out for currency and index futures on Globex.

Be careful.

xerty said:   
traderranger said:   I have never traded after hours. 
  If you have to ask, you probably should keep it this way.  

No, that's ridiculous.

Afterhours (A/H) trading is not as good (tight/liquid) as regular trading hours (RTH), but it's an option.  The market will be wider and probably less size on either side.  As a result, volatility might be high.  But armed with that, you might want to try.

I recommend doing this small (whatever that means to you) and have some loose framework to evaluate those A/H trades against RTH trades 

The few times that I have traded after hours is because the stock had a big move up/down and I really want to trade at that day's price. Assuming no "news" on the stock, my experience has been that limit orders placed at the market close bid/ask prices (depending upon whether you are trying to buy/sell), generally get executed.

One pro that I see of after hours is that you can sometimes sell at a price that you won't see the following day. Earnings get released and stocks jumps very nicely and then as the earnings conference call starts to deflate the forward guidance, the stock can quickly reverse course and move into a negative territory. But the reverse can be true - great forward guidance can propel it even higher. So it depends - if the stock is reaching a level at which you would take your profits and run home, then a limit order for that price is a worth a try. But remember that the afterhours market on an earnings day is moving very rapidly - you have to be quick to monitor and adjust your trade price.

And before you make the actual trade, you should try to put a dummy after hours trade - e.g. if BA is at $170, try to put a dummy BA buy for $100 with the intent of canceling it right away. The reason I say this is because I was trying to do an after hours trade in a Fidelity account and it said something about calling them to get approval for after hours trading. F...ing stupid - if I want to trade right now and the market is moving, why would they think that I would have the time to call them? So by creating a dummy trade, you go through the full motion of doing it and making sure that your broker is not mentally retarded and you can actually make the trade when you want to.

ilkhante said:   
xerty said:     If you have to ask, you probably should keep it this way.  
No, that's ridiculous.
 

Less so than you might think, and I know what I'm talking about.  Here's an analogy - 

I have never invested in casino gambling.  My question is what are pros and cons of investing your money by playing slot machines, rather than traditional stocks or bonds?

A sort of a Dunning -Kruger effect. I'm butchering it, but the more you know about a subject, the more aware you are of the complexity and stuff you don't know. But people with little knowledge of a subject consistently underestimate how much they don't know.

I have NOT done any after hours / pre-market trading. One thing that bothers me is I cannot find good quotes that include sales volume and good timing of reporting market conditions. It most likely is my choice of market makers. CNBC and others seem to have good timely access which is my major concern.
It is the reason, I have not done it. Good timely information is priceless ... especially pricing.

You can see time and sales on interactive brokers. Not every tick but aggregated at 1s intervals or so.

xerty said:   
ilkhante said:   
xerty said:     If you have to ask, you probably should keep it this way.  
No, that's ridiculous.

Less so than you might think, and I know what I'm talking about.  Here's an analogy - 

I have never invested in casino gambling.  My question is what are pros and cons of investing your money by playing slot machines, rather than traditional stocks or bonds?

  
I somewhat disagree with your line of reasoning since that would imply that we should not do a lot of things just because we haven't done them before. I did not know about covered calls - but read of them and did a few trades. Going through the mechanics of few trades really boosted my confidence and understanding of the topic. Now when I can talk about covered calls like it is air/water and the people who don't know this stuff, wonder WTF I am talking about. And when you do these things, you do get burned sometimes - e.g. "non-standard options" where 1 contract of something represents 150 shares because the company split the shares 2:3 - probably just to screw up the whole system - this risk wasn't highlighted in my options course and that needs to be absolutely highlighted.

 

PrincipalMember said:   I somewhat disagree with your line of reasoning since that would imply that we should not do a lot of things just because we haven't done them before.
I didn't say "never trade after hours", I said "if you have to ask..."   If you know that some big important news has come out overnight and want to trade the premarket for a stock in light of that, sure that's a good reason.  My point is that you should already have your reason and just be asking about how to do it.  If you don't have a reason, you really don't want to try to trade pre/post-market hours just because you're bored or something.  Spreads are terrible, many of the regulatory protections don't apply, costs are sometimes higher, and most importantly nearly all of the traders active during this time are experts who have better access to breaking news events than you do.
I did not know about covered calls - but read of them and did a few trades. Going through the mechanics of few trades really boosted my confidence and understanding of the topic. Now when I can talk about covered calls like it is air/water and the people who don't know this stuff, wonder WTF I am talking about. And when you do these things, you do get burned sometimes - e.g. "non-standard options" where 1 contract of something represents 150 shares because the company split the shares 2:3 - probably just to screw up the whole system - this risk wasn't highlighted in my options course and that needs to be absolutely highlighted.
  I feel your pain on getting burned by nonstandard options.

xerty said:   I didn't say "never trade after hours", I said "if you have to ask..."   If you know that some big important news has come out overnight and want to trade the premarket for a stock in light of that, sure that's a good reason.  My point is that you should already have your reason and just be asking about how to do it.  If you don't have a reason, you really don't want to try to trade pre/post-market hours just because you're bored or something.  Spreads are terrible, many of the regulatory protections don't apply, costs are sometimes higher, and most importantly nearly all of the traders active during this time are experts who have better access to breaking news events than you do.
 

  +1.
OP asked about the cons and one of them is precisely the volatility after say an earnings announcement. I have seen prices wildly fluctuate after-hours (after an earnings announcement) and at times completely reverse course in the next day's trading. So even if you think you are trying to buy/sell before the damage is done, you may find yourself on the wrong side of the trade.

PrincipalMember said:   
xerty said:   
ilkhante said:   
xerty said:     If you have to ask, you probably should keep it this way.  
No, that's ridiculous.

Less so than you might think, and I know what I'm talking about.  Here's an analogy - 

I have never invested in casino gambling.  My question is what are pros and cons of investing your money by playing slot machines, rather than traditional stocks or bonds?

  
I somewhat disagree with your line of reasoning since that would imply that we should not do a lot of things just because we haven't done them before. I did not know about covered calls - but read of them and did a few trades. Going through the mechanics of few trades really boosted my confidence and understanding of the topic. Now when I can talk about covered calls like it is air/water and the people who don't know this stuff, wonder WTF I am talking about. And when you do these things, you do get burned sometimes - e.g. "non-standard options" where 1 contract of something represents 150 shares because the company split the shares 2:3 - probably just to screw up the whole system - this risk wasn't highlighted in my options course and that needs to be absolutely highlighted.

 

  If you've watched some UFC matches and have a buddy who does a little boxing, should you fight against a pro?

You have to weigh the risk here. In UFC the objective is to win, and the score is kept in hits and takedowns, and to a lesser degree physical punishment on an opponent. In the stock market, score is kept in money, and after hours trading isn't pickup basketball at the local Y.

We're probably being a little dramatic here. Yes, the OP should avoid trading after hours if trading means short term trading in stocks where the bid/ask is $1 across. But if he sleeps late and wants 1000 Apple on a day with no news and bids yesterdays close on a limit order, it's no big deal. 

Is there anything inherently wrong with trading after hours? In other words, let's say you just added cash to your account and forgot to buy the stock in the proportion you want. Say you would've placed a limit buy order at $15.50 for 10 shares. Is making that order at 3:55 any different than making it at 4:05? Sure, there could be news that causes it to drop a ton in after hours and you just purchased the stock right before it dropped. But you would've rode the drop if you bought at 3:55 anyway. If the value goes way up and the limit order is missed - sure, you missed it, but you would've missed the swing up anyway if you decided it was a bad idea to trade after hours.

So, is there any difference in trading after hours if you already have the sell price/buy price determined and place a limit order? I just don't understand why trading after hours is any different when you place a limit order (unless stop loss orders would be triggered outside of trading hours if you enable after hours trades on your account).

Margin -- Take my post with a grain of salt. I'm a novice compared to some of the amazing folks here, from which I've learned a lot. Xerty, for instance, has taught me that getting a good bid / ask spread is far more important than a few bucks off of a buy / sell commission.

At Interactive Brokers, I can see the bid / ask spread (regular trading and before / after hours). On some stocks at some times, the B/A spread is significant. At other times, not so much. With IB, I can tell. At ETrade , I can't. I'm at their mercy for getting a good price or not.

So, is there anything inherently wrong? No. Not at all.

Are there ways you can lose out on some bucks or make some bucks compared to a trade tomorrow? Abso-LUTE-ly.

YMMV, so soak in the advice on the posts above, read a bit more and enjoy!



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