While extended trading hours may provide additional opportunities, it is important to understand the risks as well.
Liquidity: The liquidity of a security refers to the number of orders in the market, and represents how easily you can convert a security to cash without substantially affecting its market price. Since there are fewer traders participating in pre-market and after-hours trading, liquidity tends to be low, meaning it’s more likely that an order may only be partially executed or not executed at all.
Volatility: Another result of lower liquidity, extended-hours trading tends to see more volatility, which means a more unstable security price that swings between highs and lows more frequently.
Spreads: With lower liquidity and higher volatility, the difference between the available buy and sell prices (known as the spread) may be greater during pre-market and post-market hours.
Availability: Not all stocks are available for pre-market and after-hours trading, and only limit orders can be placed in extended-hours trading.
Competition: Many extended hours traders are professionals with large institutions, and may have access to more current information than individual investors.
Market-hours traders: Certain institutional and major investors may choose to simply refrain from pre-market and after-market trading, regardless of company announcements or market events. Due to this, it's possible for a stock's price to fall sharply during extended hours trading only to rise when the markets open the following day.
