How Are After Market Stock Prices Influenced?

By | February 26, 2014

Available To Everyone

You can view and trade after market stock prices shortly after the market closes until quite late or you can start earlier than the market opens. However, there are a few things you should know first. You are, as a public investor, capable of trading on these networks if you know how.

There are different networks that you can trade on at this time. These are called ECNs, or Electronic Communication Networks.

After Hours Stock Prices Influenced By Fewer Investors

After hours stock prices do not act the same way as stock prices during regular trading hours. For one thing, they are more volatile, and spreads widen dramatically, especially in stocks with very low trading volumes.

As a result, trading after hours is usually done only by professionals and high net worth investors.

There are many fewer investors on these networks than during the day time. If you are familiar with how trading volume determines volatility and price spreads, the after market action will be quite clear to you.

Impact on Demand and Supply

With lower volume (less traders), there is naturally less demand and supply for any stock you are considering investing in.

You may be trying to sell a stock at $5.20. But the most anyone is willing to pay is $5.00.

In this case, it will be harder for you to sell your stock. You may even go till the next day before you can sell. This is another influencing factor you should be aware of when looking at the value of after hours stock prices.

So, say you give in and sell your stock at $5.00. You would have normally gotten $5.20, your asking price.

Wide spreads DO make a difference

This is not a large spread. But at times, it can be up to a few dollars difference. Imagine many of these trades being placed. With more trading comes more influence on stock price.

This is why after market stock prices tend to be more volatile, less liquid, and have greater price gaps.

I have just skimmed over this topic. For more information, check out my article on extended hours trading of stock.