After Hours Trading on NASDAQ

The practice of buying and selling stocks outside of the regular operating hours of the stock exchanges is called “after hours trading,” and there are many traders who work after hours trading NASDAQ securities. The practice is well-known enough that it has been labeled “amateur hour” by professional traders. Another reason for the “amateur hour” designation is that many of the people who do this are smaller traders looking for deals. After hours is typically the time after 4 p.m. The primary mechanisms used for after hours trading, both on NASDAQ and the New York Stock Exchange (NYSE), are electronic communications networks (ECNs). It should be noted that the NYSE and the NASDAQ function differently in that the NASDAQ is an electronic stock exchange. Prior to ECNs, after hours trading was limited to institutions and corporate traders.

Electronic communications networks
The oldest of these networks is Instinet which began operation in 1969 and became popular for trading stocks after hours. There are several ECNs, and they are the means by which 30 percent of NASDAQ securities are traded, both in the daytime and after hours. Because the NASDAQ is an electronic stock exchange (as opposed to the NYSE), it functions in essentially the same way in both after hours and regular daytime trading. The point of ECNs is to allow for matching and negotiation between buyers and sellers for the purpose of security trades. Risks involved in trading on an ECN after hours include wider market spreads, increased volatility and prices when compared to those things during daytime trading hours. There will also be less liquidity as there will be fewer and buyers and sellers of each stock outside of regular hours. Other problems with ECNs include the fact that there is no common reporting structure. This means that prices may vary across ECNs.

NASDAQ after hours indicator
The trading activity prior to the opening of the market (after hours) is often used to predict how the market will open. This is not necessarily a reliable indicator, but it often used as one, meaning that signs of volatility and the general mood of the market of daytime trading may be evident during the previous after hours trading session. The activity is tracked and calculated with the same methods used for daytime trading. Traders who work after hours trading NASDAQ securities are usually experts and professionals and usually this kind of investing should be left to them.

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