Risks
What are the risks of after-hours trading?
Stock prices can see significant volatility as traders and investors react to company earnings announcements. The amount of movement largely depends on whether or not the results are in line with analysts’ estimates. As most US companies release their earnings outside of the main session, the majority of trading takes place in the pre- and post-market sessions. This makes out-of-hours trading vital for taking advantage of earnings volatility.
Lower liquidity: Fewer active participants to fill the other side of trades out of hours.
Higher volatility: lower liquidity can result in more dramatic swings in prices, which can be good or bad – depending on your individual risk appetite
Wider spreads: the difference between the buy and sell price, known as the spread, can widen when volatility rises or liquidity fall
You can manage your risk using stops and limits, which automatically close your trade when the price hits a pre-determined level. Guaranteed stops are the best way to cap risk, because these always close your trade at the exact level you specify – even if the market moves quickly or ‘gaps’. A small premium is payable if a guaranteed stop is triggered.
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