Understanding After Hours Trading and Risks
Have you ever heard of a trader or investor doing a position when the market clock is closed? Yes, this is called after hours trading.
After Hours Trading can be interpreted as a sale and purchase contract or stock on the main stock right after the closing of the specified regular trading hours. Many exchanges have regular operating hours from 9:30 to 16:00 and are usually divided into two sessions interspersed by rest. To be able to enter transaction orders in the session After Hours Trading (AHT) is usually between 16:00 and 20:00.
Given the substantial risk of transactions in AHT sessions, the investor who can trade is also restricted. Only investors have great wealth. Usually institutional investors, although there are opportunities for investors with average wealth to trade in the AHT session.
This is helped by technological advances in trading on the exchange. Ie using ECN (Electronic Communication Network). ECN is a communication network that allows investors to interact and transact electronically without being identified (anonymous). Even institutional investors are not seen in action.
The transaction order in the AHT session can provide a huge profit potential but investors should be wary of the risks as well. Having a position when the market is closed, then investors have overnight positions including overnight risk.
Liquidity is small
The market with high liquidity is when the sale and purchase happens continuously because the number of market participants are many. This usually happens during regular business hours of the stock. But in the AHT session, trading volume will be less due to limited market participants. Not all investors want to transact in the AHT session and bear the risk of overnight.
Lower trading volume may cause spread, bid and ask price difference, width. Therefore, it is difficult for a person to execute his trading at a favorable price.
While retail investors now have the opportunity to trade in AHT sessions, they must compete with large or institutional investors who have access to more resources than the average retail investor. They can get caught in an unfavorable position.
The AHT session is usually traded thin (movement) compared to trading in regular sessions.
From the lack of transactions in the AHT session, of course there is also a surplus of transactions in the AHT session. That investor can react quickly to news or new information before the market opened the next day.
Furthermore, although volatility is an AHT-related risk, there is still a chance of finding some interesting prices in this AHT session.