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BUSINESSWEEK ONLINE: Business Week ebiz | |||||||||||||||||
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For Little Guys, the More Trading Hours, the Better While they hold some risks, the new after-hours electronic trading systems can help individuals compete against the pros Chalk up one for individual investors: After-hours trading is finally catching on, no thanks to Wall Street pros. The push to extend trading sure hasn't come from the folks who enjoy their 9:30 to 4 p.m. (Eastern time, naturally) trading day and have long been able to trade after hours on private networks when they choose. Small investors who want to act on late-breaking news before the market opens the next day, or who simply want their buy and sell orders filled while they manage their finances at night from home, are winning the battle for longer trading hours. "Customers have enthusiastically said they want to see it happen," says Christos M. Cotsakos chairman and chief executive of E*Trade, which announced on Aug. 17 that it would begin offering trading from 4 p.m. to 6:30 p.m. ET in September. "After-hours trading offers people more choice," he says. "That is really what this is all about." E*Trade customers will trade after the close through Instinet, the leading after-hours trading system that was previously available only to institutional clients. "Think how ridiculous it is that the markets close just as people are getting out for lunch on the West Coast," says Alex Goor, executive vice-president at Datek Online Holdings Corp., which started offering trading of NASDAQ stocks from 4 p.m. to 5:15 p.m. ET, at the end of July. "The only reason is that people on the East Coast want to go home. Why should the market correspond to the time schedules of a select group of professional traders? The hours on Wall Street should be the hours of the American public."
"DATE WITH DESTINY." Many firms are planning to go the same route. Wit Capital announced plans on Aug. 5 to launch its own after-hours trading offering Nov. 1 and has an exclusive deal to promote it to America Online customers. On July 21, Fidelity Investments, Charles Schwab, Donaldson, Lufkin & Jenrette, and Spear, Leeds & Kellogg, announced a joint venture that would form a new ECN. Schwab, for one, expects the ECN to be a key part of an upcoming after-hours trading offering. Both the New York Stock Exchange and NASDAQ plan to offer evening trading sessions in the future, pending approval from the Securities & Exchange Commission, but they aren't likely to move ahead until 2000 is under way. "Once some firms begin to offer it, it becomes a date with destiny for the competitors," says Tom Carter, an analyst with U.S. Bancorp Piper Jaffray who covers electronic financial services. "They need to have service parity." This sudden change in the way business is done on Wall Street has prompted plenty of hand-wringing. Many Wall Street pros don't think individual investors are prepared for the challenges of after-hours trading -- or even understand how different it can be from trading on the national market system.
Clearly, individuals who try to trade on late-breaking news can get burned. For example, they might buy a stock after seeing what seems like an upbeat earnings release, only to find the stock opens several points lower in the morning when an analyst faults the earnings outlook. Hogan's concern is that Wall Street firms will always have better access to such information than individuals do and thus make much better trades. "The macro philosophy is that the value of a company is best reflected when there is the most liquidity," says Carter. "When stocks are trading thin, the price may not be the best reflection of what it's worth." A FEW EXTRA BUCKS. That may be true. However, there are plenty of clear-cut cases where a company announces very bad earnings and the stock plummets overnight as institutions sell their positions. With after-hours trading, individuals will at least have the opportunity to sell the night before instead of getting stuck on the sidelines until the next morning. Also, some investors will be able to trade after hours and make a few extra bucks. Many Datek customers, for example, bought Cisco Systems (CSCO) after its Aug. 10 earnings release, made money when the stock opened up several points higher the next day, according to Datek. Investors who try it will quickly find that profiting from short-term trading opportunities is a tricky game. But most systems allow traders to enter only limit orders, which means they must specify the price at which they want their stock to be bought or sold. Investors who have done their homework and have a set price in mind at which they'd like to trade won't be hurt by extra volatility during the evening session. Best of all, individuals will no longer have to send their orders in at night and wonder at what price it'll get filled in the morning. Ultimately, as more ordinary folks trade after hours, these sessions will become more liquid. Then volatile trading and wide spreads between bid and ask prices won't be so much a concern. After-hours trading may give speculators more chance than ever to lose money, but for investors who avoid those short-term games, what after-hours trading really offers is flexibility and convenience. Amey Stone is an associate editor at Business Week Online _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ |
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 Amey Stone covers the markets and investing for Business Week Online | ||||||||||||
