Robinhood extends trading hours from 7am to 8pm — 3 warnings about playing the market after hours

At 7 am, it might be time for morning coffee, while 8 pm might be time for dinner, watching your favorite TV shows, or even enjoying a glass of wine.

If you have a Robinhood account, it’s also becoming a time to play the stock market during extended trading hours, but is that time well spent?

The brokerage platform aimed at beginning retail investors said Tuesday which is launching extended business hours from 7 a.m. to 8 p.m. Eastern time.

Robinhood users are “juggling full-time jobs to school to families to side jobs,” the company said on a Tuesday. blog post. “Our new extended stock trading hours will give them more opportunities to manage their portfolio at a time that’s convenient for them, whether it’s early in the morning or late at night.”

‘The trading volume in the after-hours market is a fraction of what it is during general market hours. This can lead to significant price distortions.’


— Mike Hunsberger, owner of Next Mission Financial Planning in St. Charles, Mo.

Robin Hood
HOOD,
+24.20%

Trading is now offered at 9am, before the 9:30am opening bell, as well as after-hours trading from 4pm to 6pm

The ability to buy and sell from 7 am to 8 pm is happening now and all users should be able to do so in the coming weeks, a spokesperson said.

Other brokerage platforms already allow trading in the stock market during extended hours, such as Loyalty investments and charles schwab
BLACK,
-0.63%
.
And the cryptocurrency market never sleeps, even in platforms like Robinhood.

Investing and trading is never easy at any time of the day. But if Robinhood has decided to keep the lights on before and Later, financial advisers say that it is necessary to clearly see the risks that accompany extended trading hours for stocks.

Here’s a quick field guide on what to look out for if you’re skipping morning coffee or a long dinner to buy and sell.

1. Use order limits

Before and after official stock market trading hours, there may be fewer buyers and sellers in the market. If the price is the result of supply and demand, that can distort a stock’s price during this time.

“Trading volume in the after-hours market is a fraction of what it is during general market hours. This can lead to significant price distortions,” said Mike Hunsberger, owner of Next Mission Financial Planning in St. Charles, Missouri

“Individual investors are likely to pay prices too high and sell too low during after-hours trading,” said Curtis Diaz, president of big financial blue in Tampa, Fla. “The gap between supply and demand is widening, as there are far fewer buyers and sellers.”

So here’s how to set up safety measures: use limit orders, several advisers emphasized. Limit orders are instructions “to buy or sell a stock at a specified price or better,” the Securities and Exchange Commission explained. A buy limit order is only executed at or one point below the limit price, the SEC said. A sell limit order is placed at or above the limit price.

“Individual investors are likely to pay prices too high and sell too low during after-hours trading.”


— Curtis Diaz, president of Great Blue Financial in Tampa, Florida.

These orders do not guarantee execution, the SEC noted. But in the case of extended trading, advisers said setting these limit order ceilings and floors could protect someone from unfair treatment.

Limit orders are a must, according to Steve Zakelj of Flatirons Wealth Managementt in Boulder, Colo. “Trading is almost always extremely thin, so market orders could be filled at prices 10% to 20% different from the current spot price, as other traders will place their own buy and sell limit orders at higher prices. of fantasy’. I just hope a new trader shows up and mistakenly enters a market order.”

In a help section on your website, Robinhood warns that extended trading hours can be volatile and risky. Market orders placed during extended hours “become limit orders with a limit price set at 5% of the last trading price at the time the order was entered,” the company said. For a buy order, “the limit price is set at 5% above the last trade price”, while a sell order sets the limit price “at 5% below the last trade price”.

If the market price stays above the limit price for a buy or below the limit for a sell, Robinhood said “the order will remain pending and will be canceled at the end of the session outside of business hours.”

2. Avoid instinctive movements

Sure, this applies at all times, but it’s especially the case before and after business hours. If the information that moves the market appears during regular hours, there are more people digesting the news and reacting. Hot trading without a broader market reading in the news could leave early risers and night owls in the dust.

Many company earnings reports tend to appear during extended hours, said Chao Zhang, a managing member and chief investment officer of Think of different wealth advisors. A stock’s price “can often have knee-jerk reactions to earnings releases (based largely on hit/miss numbers in headlines) that may not be correct,” Zhang noted.

When there is more time to read nuances, such as forward guidance, the stock “can often trade significantly differently,” Zhang said.

Extended trading can open up opportunities for retail investors to take advantage of big price moves, but that comes with risk.

Do you need an example? Zhang pointed to the business history surrounding Dave & Buster’s Entertainment
PLAY,
+14.87%
.
share fell 9% in Monday’s extended session after quarterly results fell short of analysts’ expectations, Zhang noted. Now that investors had time to read the guidance and listen to management’s call, the stock rose. Shares of the company are up nearly 15% in afternoon trading from the start of trading Tuesday morning.

Extended trading can have advantages, opening up opportunities for retail investors to take advantage of big price moves, said Jeff Burke, founder of 7th Street Financial in Eden Prairie, Minn. Still, they also need to know the downsides, especially during earnings season.

“Sometimes that big early move sticks and other times the market processes the information further throughout the day and that big early move is largely erased. You could get up on the wrong side of that initial movement,” Burke said.

3. Know who you’re up against

Looking at the number of players trading in the extended hours, it’s worth noting who else is sticking around. There are likely to be many people and financial firms whose full-time job is trading, advisers said.

“During times of low market liquidity,” retail investors who have stuck around for extended trading “often play against the giants or professionals who have the resources and time to trade much more effectively during these hours,” said Erik Baskin. from Baskin Financial Planning in Dayton, Ohio.

During non-market hours, retail investors should be wary of “low liquidity, lack of experience, and uncertainty surrounding market reactions to news releases.”


— Erik Baskin of Baskin Financial Planning in Dayton, Ohio

In Baskin’s opinion, overnight is not the right time for Robinhood users to trade “due to low liquidity, lack of experience, and uncertainty surrounding market reactions to news releases.”

robinhood shares jumped on tuesday on the news of extended hours trading capabilities. Robinhood shares are down nearly 9% year-to-date, while the Dow Jones Industrial Average
DJIA,
+0.97%

is down about 3% and the S&P 500
SPX,
+1.23%

has dropped 3%.

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