“They can ignore the after hours because of the volume,” he says. “The more experienced trader can see what’s driving the bid. If it’s 100 shares, 50 shares traded, they know that’s not the market. Tomorrow morning they’ll have [many more] orders backed up at $28, $28.01. That’s the market.”
Because of the thin market conditions and the likelihood of premium pricing in after-hours trading, Christian Magoon, founder of Amplify ETFs and a veteran of the ETF industry, says he recommends ETF traders avoid trading during the time, as well as avoid trades at the beginning and end of the regular trading session.
Additionally, he says, ETF investors should do a little homework on prices before placing a trade.
“Investors should review the fund’s intraday indicative value in order to compare this number to the bid and ask spreads in the marketplace for shares of an ETF,” Magoon says.
Messina says some trading platforms won’t allow investors to participate in after-hours trading. If they do allow night-session trading it may not be in all securities because of the lack of liquidity.
While after-hours trading can offer some opportunities for the sophisticated investor if he or she sees values fall to a steep discount, Messina cautions investors to be careful.
“You don’t want to get caught in a bad trade at the end of the day because the markets will reset themselves to where the original spreads were,” he says. “It’s still a trade, it has a trade date and a settlement price.”