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Understanding After-Hours Trading

The major market centers in the U.S. - the New York Stock Exchange and the Nasdaq Stock Market - are typically open for business from 9:30 AM to 4:00 PM Eastern Time. In the 1990s, trading before and after these regular business hours have been possible only for major institutional investors and high-net worth individuals.

However, by the end of the last century things changed and trading outside that regular window (also known as "after-hours trading") is now available to a wider range of individual investors thanks to the smaller exchanges that offer extended hours and the rise of Electronic Communications Networks (ECNs).

Have in mind though that as with regular-hours trading, different brokers offer different services during extended hours. The trading arrangements will vary widely from one online brokerage firm to another and therefore you should shop around in order to find a brokerage firm that will suit your specific trading needs.

Additionally, ECNs bring the possibility of trading after exchange hours with a number of complications.

To start with, ECNs do not operate under the same rules as traditional markets. A big difference compared to the regular trading is that some ECNs limit the ability to see quotes on the other networks. They will only post your order to the particular ECN you are on.

Most ECNs operate as crossing markets. In other words, your trade will be executed if the ECN can make a match (or cross it) with another investor. If not, your trade may be routed for execution to an alternate market center (such as market makers, exchanges, or other ECNs) if they participate in the after-hours session, or it may be posted to the ECN limit order book.

Some ECNs permit "market orders" whereas others accept only "limit orders".

Many of the ECNs are affiliated with online brokerage firms with their own set of rules. Therefore if you consider trading after-hours you should get familiar with your brokerage firm's after-hours trading rules in advance and make sure you understand how your trades will be handled. Educate yourself thoroughly about the differences between the after- hours trading and regular trading and especially the risks.

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