Trading in the stock market offers a lot of benefits. However, as an investor for this market, you will mostly invest during the fixed times during the day. This is known as day trading, wherein which most investors indulge in. However, most investors also trade after the traditional market closes. This is known as night trading.
With the assistance of electronic communications network, also known ECMs, it makes it easier for investors to route orders to their trading account and match up buyers and sellers after trading hours. Just like the normal hours, after hour trading, also known as night trading would have limitations as compared to the traditional trading. However, the limitations are completely different from the day time trading market.
But how can an investor place orders? The same system works similarly to the daytime trading, with minuscule differences. For one, you still need a trading account. However, the trading institute who offers you this account will have different fee structures, for day trading as well as night trading. However, when it comes to trading, most brokers offer specific day orders, which are only valid for that day, including the night trading. In the even there are no buyers, to match your orders, then your order will get expired. Alternatively, there is another set of orders, which go beyond the same trading day and inclusive of the after hours. It can also go into the next day. Therefore, as an investor who is looking into orders beyond the night trading, you must look out for these.
Whether it is the day trading or the night trading, each section of the trade market will offer you its own set of benefits. But in order to make the most of your investment, you will need to understand the risks involved. In this case, the risks involved in night trading are different.
Liquidity: This is one of the major risks of night trading. This section does not have the same volume and market size that is offered in the day trading.
Big competitors: As an individual trader in the night trade, you may face large institutions and companies in the after-hours market. These institutes have the right leverage and power to overcome you when trading, therefore you must be prepared.
Wider spreads: Owning to the low liquidity in this market, the spread of your stocks will spread wide out. When this occurs, tracking your stocks will be a tedious job. Therefore, it is crucial that you understand where your trade your stocks.
Volatility: As mentioned previously, owing to the low liquidity and the widespread stocks, you may face plenty of volatile condition during the after-hours market. Therefore, you must be prepared to check for earning announcements or company news in these odd hours. As such news can drive stocks higher or lower in an instant, it is crucial that you are aware of these factors in order to make a sound investment.