Ask TheStreet: Late Trading

"The danger of trading in extended hours is the thin volume," says Randy Diamond, sales trader at Miller Tabak. "If you are not careful, you could wind up paying well above the market, or selling way below it."

But should you find the need to wade into the world of extended-hours trading, here are the basics.

When Can I Trade?

Nasdaq holds premarket trading from 8 a.m. to 9:30 a.m. and after-hours action from 4 p.m. to 6:30 p.m.

From 4:15 p.m. to 5 p.m., the NYSE holds its so-called crossing session, which means that orders can only be filled if they can be matched (i.e., crossed). Trading is indeed thin, as this session averaged just 43,533 shares per day in 2004, the NYSE says.

How Does It Work?

Actual trades typically take place via computerized order-matching systems known as electronic communications networks. ECNs electronically display and match buyers and sellers to execute limit, not market, orders.

Professional investors, such as institutional investors, have been using ECNs for more than 15 years. Retail investors are commonly discouraged from trading in extended hours because of the lack of liquidity. Nevertheless, most brokers offer retail investors the ability to trade in extended hours if they sign a form stating that they understand the risks. (More about those below.)

Most brokers also maintain restrictions on after-hours trading. Fidelity Investments, for example, has no minimum order but a maximum order of 5,000 shares.

What Moves?

A look at the Nasdaq most actives for the early and late sessions shows that action is concentrated in a few mega-cap names such as Cisco(CSCO Quote), Microsoft(MSFT Quote) and Intel(INTC Quote) -- along with some smaller players that are in the news at the moment, as with earnings reports, executive changes or maybe even a "Mad Money" mention.