There was a time when the individual stock investor could only buy and sell stocks during the regular trading hours at the major stock exchanges. In the United States, these hours are typically from 9:30 a.m. to 4:00 p.m. However, online trading began to rapidly gain popularity in the 1990s, leading to a greater demand for stocks in general, and particularly a demand for the ability to trade stocks after the traditional business hours. A Form T is a form that brokers are required to use to report transactions that occur after the market’s usual hours. Trades that occur outside of regular market hours are thus referred to as Form T trades.
After-hours trading had been available for some time to institutional investors and high net worth individuals, but became more widely available in the late 1990s to individual traders with the rise of Electronic Communications Networks (ECNs). If an investor or trader is a customer of a brokerage that has access to an ECN, then they can engage in Form T trades in the after-hours marketplace, which is open an additional two and a half hours after the traditional markets close in the U.S. An ECN acts as the go-between for buyers and sellers in the after-hours market.
For the individual as well as the institutional investor, Form T trading does present a few important advantages. If the investor happens to find out something that may have an effect on the price of a stock after hours, they have the convenience of acting on that information immediately. Otherwise, it would be necessary to wait until the markets open again, by which time the information will have reached many more investors, making it harder to profit from the situation. Form T trading also makes buying and selling U.S. stocks more convenient for foreign investors who operate outside the usual hours of trading in the U.S.
It should, however, be noted that Form T trading should be done with the utmost caution, especially by the individual investor. The risks may in many cases outweigh the benefits. The biggest drawback of after-hours trading is the lack of liquidity. This simply means that for some stocks, trades become very difficult to execute, and some stocks may not trade very little or not at all during extended hours. Additionally, depending on the broker, an order may not reach all the possible venues where it could be executed, so if it is executed, it may not be at the best possible price. Some investors do feel that the risks of Form T trading are worth the rewards, but it is best suited to those with the most experience in the market.