Afterhours Trading: Waste Of Time?

Posted in Stocks

So I’ve spent the past few days experimenting with afterhours trading. For those who have no clue what that term is, it’s basically trading stocks after the market closes (standard 9:30 A.M. to 4:00 P.M. EST). A lot of fellow investors have previously warned me about the high risks associated with afterhours trading, but I decided to take it for a spin. Can good money be made on futures?

Not really, unless you’re really damn good. Allow me to explain why afterhours trading is so risky:

1. You don’t have the inside scoop - with the NYSE/Nasdaq filled with tons of traders located in NYC itself, amongst the brightest of investors in the world, coupled with a handful of advanced prediction/news tools not available through the standard online brokers, any money to be made is usually grabbed up by the elite traders in the afterhours arena.

2. You’re trading directly with other shareholders - there’s no middle man. Trading afterhours is literally trading between other shareholders that use online brokers. Investors set the bid price, shareholders set the ask price, just like day trading. The catch is that since the actual company’s monetary status is not involved in affecting stock prices, afterhours trading makes no affect on the “real world” value of the stock. It’s all in your mind, really.

3. Low trade volume, poor liquidity - low trade volume (especially on micro/small/mid-cap stocks) makes for an extremely illiquid platform for investing. There’s no guarantee that you will be able to find a buyer for your shares at your asking price: there’s simply not enough people to assure each trade goes through, even if you set your sell order under the lowest ask price!

4. Green futures doesn’t necessarily mean a good day to come - since your dealing with virtual value of stock, essentially your just dealing with investor confidence. Though most companies tend to release big corporate fiscal news after normal trading hours, the actual impact on the real world stock value often cannot be felt till the next day of trading. Not to mention oil prices, Fed news, etc which can easily sway what happens to the stocks closing price the next day.

5. Quotes are just unreliable - with no actual trading floor in session, a low volume of traders, and a plethora of technical issues with the online cross-broker trading, you never really know what the stocks realtime value is. Quotes are often delayed heavily, and lots of orders are not followed through. Remember to set a limit price; setting a sale/purchase at market price in afterhours could cost you.

Have I made money afterhours? Yes, a little. But with a relatively small cash account (no, I don’t have millions lying around to invest), there’s really no point stressing over the pocket change.