After Hour Trading means Trading in assets and securities even after the stock market gets closed. The Securities and Exchange Board of India so called SEBI authorises the traders to do after hour Trading. This type of trading helps those traders who do not have time to keep watching the market moves during the trading hours . Buyers and sellers who place orders after the stock market closes amounts to after hour Trading. Such orders are called after-market orders (AMOs).
So what points should be we remember in After Hour Trading
- There are two stock markets in India one is BSE (Bombay Stock Exchange) and the other is National Stock Exchanges.
- Both these Exchange market operates from 9.00 AM to 3.45 PM. Regular Trading Happens during these hours but one can trade after the market shuts . So one can place an order for buying, selling, delivering or receiving securities any time between 3.45 PM to 8.57 AM the next trading day. These orders are Registered as AMOs
- As soon as the market opens the next day these orders are pushed in to the market.
Why After Hour Trading is Important ?
- After Hour Trading gives us the option of trading at attractive prices at your own pace.
- One of the reasons for investing in after hours trading is it gives you enough time to analyse the market trends. You can observe how the stocks have behaved , and what announcements government has made that could impact the stocks.
- After hours trading help you minimise the losses if used wisely. If the trader can analyse the changes that could lead to drop in prices in future , trader can cut down those losses by selling the stocks.
To whom After Hour Trading is Useful?
- People who are working and do not have time to observe market
- People who are staying abroad
The major risks of after-hours trading are:
- Low liquidity : Trade volume is much lower after business hours, which means you won’t be able to buy and sell as easily, and prices are more volatile.
- Wide bid-ask spreads. This piggybacks on the above: Because trading volume is low, you might see lower bids for your sell orders, meaning an order could go unfilled or it could be filled at a price below what you could have earned during normal hours.
- Order restrictions. As mentioned above, most brokerage firms allow only limit orders during extended hours, which means your orders will be executed only if they are matched with a buyer or seller at the price you’ve set or better. That leaves your orders at risk of not being executed at all.
- Bigger fish. Casual investors don’t often play in the after-hours pond; instead, it’s full of professional traders. These investors likely have more practice, more money and more information than you, which puts them at an advantage and you at a disadvantage.
Suppose Mr Aman wanted to buy ten shares of HDFC Bank that he wanted to purchase at Rs. X per share. However, on a particular day, when the prices are close to his expectations, he couldn’t find the time to purchase during the trading hours. But still he can buy the shares through after-hours trading. Mr Aman thinks that the shares are likely to open at similar rates the next day, so he places an AMO. After-hours trading is also ideal for overseas Indian nationals who want to make investments back home.
Should you trade after hours?