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Chapter 1: what is After-Hours Trading?Halbert Uy, a professional after-hours trader, recognized a buying opportunity when a late-breaking news announcement flashed across his computer screen at 3:52 p.m. eastern standard time (EST). New Tel Ltd. (NWLL), an Australian telecommunications company, was teaming with a government-owned Chinese news agency to provide an Internet Service Provider (ISP) and an Internet portal. It was not the fundamentals of the company that caught Uy's attention, but the key words contained in the press release: "ISP," "Internet," and "China." These were all hot themes that could appeal to short term traders looking for the next momentum play. It didn't hurt that the company was thinly traded, with an average volume of fewer than 35,000 shares a day. Because Uy understood the relationship between the late-breaking news and a low-volume stock, he bought 1,000 shares of NWLL at 8'/z a share and another 1,000 shares at 81/4.
After the regular 4:00 p.m. EST market close, NWLL rose as high as $28 a share during the after-hours session. Although Uy could have sold NWLL for a huge profit the same day, he held it overnight, hoping the momentum would carry the stock even higher the next day. As it turned out, he was right.
The next day, NWLL continued to surge, reaching as high as $51 a share. Uy sold his shares between 281/8 and 48'/6, pocketing $47,500. Ultimately, by the end of the week, the stock fell back to 31'/2, dropping to 13'/8 a week later.
Whether you are aware of it or not, the after-hours market is coming to a stock market near you. Already, thousands of specialized short-term traders like Uy have discovered that they can make moneybuying and selling stocks after the regular market closes or before it opens. For professional short-term traders, the objective is to consistently find new and more profitable ways to increase their profits, and the after-hours market is their new arena.
The move toward after-hours trading has been controversial. Proponents say that after-hours trading gives individual investors the same access to the market that it gives institutional investors. Critics, on the other hand, have said this trading is simply an extension of a speculative bull market. Some even characterize after-hours trading as a casino or the Wild West rather than an organized stock market. Others characterize night traders as more akin to firefighters, with long periods of boredom punctuated by short and intense action.
No matter what your opinion, nearly everyone agrees that after-hours trading is here to stay. Now that thousands of online traders and investors have had a taste of the possible profits that after-hours trading can bring, it will be impossible to return to the old ways. If anything, the after-hours market will extend even longer, perhaps moving to a fully operational 24-hour market. All you have to do is look at the numbers to see that trading after hours is becoming increasingly popular. In the early days of the after-hours market, retail investors traded no more than a few thousand shares. But those figures are increasing every quarter, with Instinet and Island ECN handling most of the volume. For example, the Dow Jones newswires reported that after-hours trading activity was increasing each month, to almost a billion shares traded during the month of January 2000 alone.
There is little doubt the after-hours market has created a revolution in personal investing that will affect the life of everyone who invests or who works on Wall Street. It will affect how you buy and sell stocks or mutual funds, when daily newspapers report stock quotes, how financial television programs report on...