Options trading hours run from 9:30 AM to 4:00 PM Eastern Time, although you’ve probably heard of the results of options trading after hours. Can you trade options after hours?
What is options trading after hours?
The ability to trade for longer hours has now become possible thanks to a computer matching system called the electronic market. Simply put, the electronics market works by matching buy and sell orders. If you want to buy 300 shares for $ 55, the computer will search for listed orders that want to sell at least 300 orders for $ 55. Once the match is found, the trade is completed.
Who can trade during after-hours sessions?
After-hours trading was mainly used by institutional investors until mid-1999, when ECN services became more available to retail investors. 4ECN not only allows individual investors to interact electronically, but also allows the anonymous interactions of large institutional investors, thus concealing their actions.
Risks and Dangers
The development of overtime trading offers investors the opportunity of great profits, but you should also be aware of some of the inherent risks and risks of investing during this period, including:
- Less liquidity: there are many more buyers and sellers during regular hours. When trading overtime, there may be less trading volume for your shares and it may be harder to convert the shares into cash.
- Wide spreads: as mentioned above, lower trading volume can cause a wide spread between buy and sell prices. Therefore, it can be difficult for a person to get their order at a favorable price.
- Fierce competition for Individual Investors: While individual investors now have the opportunity to trade in the after hours of the market, the reality is that they must compete with large institutional investors who have access to more resources than the average individual investor.
- Volatility: the after-hours market is poorly recorded compared to normal trading hours. Therefore, severe price fluctuations are more likely to occur after hours than during normal hours.
Are there advantages to trading options after hours?
- Convenience: The ability to trade outside of normal business hours may offer additional convenience to those who may not be able to trade during a regular session due to work or other time constraints. During after-hours sessions, they can now check current quotes and be able to trade when it’s convenient for them.
- Respond to the latest news: Most companies will publish their earnings at the end of a regular session. Thanks to trading after hours, traders can place transactions in response to messages without having to wait for the start of a new session. This will help them avoid large price fluctuations.
- Price options: although volatility can pose a risk when trading overtime, investors can also find more attractive prices after the end of a regular session. When you learn how to navigate the hours trading, you can find great bargains
Activity on foreign markets
Foreign markets – such as Asian or European markets – can affect prices on US markets. Activity on these markets takes place outside the main market hours in the US, and trading in extended hours allows you to capture the potential opportunities associated with these events.