What are the risks associated with extended hours trading?

Modified on Wed, 11 Jan 2023 at 04:40 PM

After-hours trading comes with several risks that are typically not associated with trading on an exchange during regular trading sessions. These include: 

1. Limited liquidity 

Extended hours have less trading volume than regular hours, which could make it difficult to execute trades. Some stocks may not trade at all during extended hours. 

2. Large spreads 

Less trading volume often translates to wider bid-ask spreads, which can adversely affect the market price for execution, making it harder to execute orders at favorable prices. 

3. Increased volatility 

Less trading volume often creates an environment for greater volatility given the wider bid-ask spreads. Prices can move drastically in a short amount of time. 

4. Uncertain prices 

The price of a stock trading outside of regular hours may not closely match the price during regular hours. 

5. Professional competition 

Many extended trading participants are large institutional investors, such as mutual funds, that have access to more resources. 

To know more regarding risks associated with trading in extended hours click here.

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