Will I Get Burned in Extended-Hours Trading?

This lack of liquidity results in a wider spread between the bid and ask prices (the prices at which someone can buy and sell their shares), as well as an inability to buy or sell a large number of shares without moving the market.

Example: Selling Wal-Mart 'After Hours'

To give an example of how the extended market works, if an individual puts in an order to sell shares of Wal-Mart (WMT Quote) at $47.25 and there is no opposite order to buy shares at the same (or higher) price, then the order will not be filled.

While this is similar to what happens during the daytime market, let's say that the last trade for WMT occurred at this $47.25 price during extended-hours trading, and because you saw WMT close at $46.50 today (i.e., WMT's closing price) you think, "Hey, that's a good price to sell at." So you put in an offer ("after hours") to sell 100 shares, and the trade goes through because someone else had a $47.25 bid.

Now at that moment, you may think that you made a good sale, but when the market opens again, shares of WMT are trading at $49. How could this happen? Because the majority of buyers and sellers do not participate in the extended-hours market, the extended-hours price is often not a fully accurate representation of how most of the investor population is valuing a stock.

While this WMT scenario is just an example, it does a good job of illustrating why most investors are better off executing their trades during normal trading hours.