Risks of after hours trading
Stock after-hours trading has its benefits but it also comes with risk. We’ve highlighted a few key risks below.
Wide spreads
Due to the lower trading volume, this can result in a wider spread between the bid price and the ask prices. With the wider spreads, it could lead to traders not being able to execute a trade at their ideal price but settling for what is on offer at the time. Although the ECNs help promptly match buyers to sellers, if there aren’t that many offers available during the after-hours, you’re less likely to get the order you want.
Less liquidity
Similarly, with wide spreads, it is harder to convert shares of stock into cash because there are considerably fewer buyers and sellers. The lower the trading activity, the less likely it is of having a successful order execution. In addition, you could be monitoring a specific stock during the regular trading hours, but that may not be available to trade after hours, so it comes as another disadvantage.
Competition
If you are an individual investor who wants to sell a stock, it may be more difficult when you come up against large institutional investors. They have access to more tools and resources than a single investor and have more advanced equipment too, so they may beat you to getting to the best buyers before you. In addition, the technology you have may affect your trades with more delays and lags compared to the regular day. More prominent investors may have supercomputers and high tech advancements to help overcome this issue.
Volatility
There will be more severe price fluctuations in after-hour trading. It can be due to several influences like the low trading volume and when news is being announced. It puts you at a higher risk of losing more money. If you’ve practised different trading strategies, they may not work after hours because of the volatility, so it’s always a good idea to buy and sell the stock with caution. On the other hand, the fluctuations could work in your favour and increase the profit you make. If you decide to trade with us, you can find out which trading strategy works best for you.
Conclusion – Trade CFDs on stocks at CAPEX
At CAPEX, we know that our clients enjoy trading during regular trading hours. We can host high volumes of orders with our advanced online platform. But we also understand that not everyone has time during the day to execute those stock trades. We recommend after-hours trading for added flexibility of trading and react to news announcements that may affect stock prices quickly.
Join CAPEX today, and discover the many resources on our platform to help you choose to stock trade after-hours, including our stocks broker demo account to try trading in those hours before spending and remember to consider the risks involved.
