Publication date: 17.07.2024
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Trading hours are not the same across all markets. Different countries have their own stock exchanges with varying trading hours. In between the different hours in different markets, we have what we say standard trading and extended trading. In this article we will explain what extended trading is and what carries within it as a technique, meaning risk and trading opportunities.
About Standard Trading
Standard trading hours are periods when major global stock exchanges are open and most active, providing the best liquidity and opportunities for trading. Key trading hours in major global markets are:
· United States (NYSE): 9:30 am - 4:00 pm (ET)
· Europe (LSE): 8:00 am - 4:30 pm (GMT)
· Asia (TSE): 9:00 am - 3:00 pm (JST) with lunch break 11:30 am - 12:30 pm
· Australia (ASX): 10:00 am - 4:00 pm (AEST)
What is extended trading?
Extended trading refers to the buying and selling of securities outside the standard trading hours of major stock exchanges. It includes pre-market trading, which occurs before the regular open of the markets, and after-hours trading, which occurs after the market close. These two ways of trading have opportunities and risks worth mentioning to investors.
Opportunities in Extended Trading
1. Quick Reaction
Investors can react immediately to earnings reports, economic data, and geopolitical events that occur outside regular trading hours, potentially gaining an edge over those who wait for the next trading day.
2. Potential for Better Pricing
Investors might secure favourable prices before regular trading hours begin, especially if they anticipate significant market movements based on after-hours news.
3. Flexibility
Extended trading hours provide more flexibility for investors with busy schedules or those in different time zones, allowing them to trade at times that are more convenient for them.
Risks in Extended Trading
1. Lower Liquidity
Part of that problem is that extended trading hours have limited liquidity, meaning fewer buyer and seller market participants. This means that trading volume is usually lower compared to regular hours. With fewer participants, it may become difficult to get a counterparty willing to sell or buy your security at your price, thus delaying order execution.
2. Wider Bid-Ask Spreads
The difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask) can be much wider, increasing transaction costs.
3. Price Volatility
Prices can fluctuate more dramatically with fewer trades, resulting in greater price instability and potential for larger swings in value.
4. Limited Availability of Some Stocks
Some stocks may not trade at all during extended hours, meaning you might not be able to buy or sell certain securities until regular trading resumes.
Conclusion
The key in every investment strategy, is to weigh potential rewards against associated risks. Extended trading is not suitable for all investors, but for those who are well-prepared and understand the market dynamics, it can be a valuable tool in their investing arsenal.
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