Just because the markets close each day doesn’t mean trading activity has stopped. From after-hours trading (AHT) to news and announcements, investors around the world can get their financial fixes around the clock.
After-hours trading means just what it sounds like: The purchase and sale of stocks outside normal trading hours on the exchanges. In the past, this activity was limited to large institutional investors and the super-rich, but now almost anyone can do it, thanks to the ease of electronic trading.
While this sounds like good news all around, AHT comes with some serious cautions. Because fewer people trade after hours than when the exchanges are open, the market is much less liquid, and wider bid-ask spreads (the difference between the highest price that a buyer is willing to pay for an asset and the lowest price for which a seller is willing to sell it) are common, and prices fluctuate more wildly. On the upside, traders can take advantage of breaking news without having to wait for the markets to open the next day.