A Night Owl's Guide to Trading Equities

After-hours trading is heading to an online brokerage near you. But have patience -- it's coming at a bricks-and-mortar pace.

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Every securities firm on the Street is waiting to see how extended trading plans pan out, but for the next few weeks, all they're likely to do is sit on their hands while the New York Stock Exchange, the National Association of Securities Dealers and the Securities and Exchange Commission lay out their plans. The NASD approved its longer-hours plan Thursday afternoon.

Once the field is set up, brokerages -- online and otherwise -- will start telling customers how they'll play along with the new hours. But for the most part, investors will have to wait until the exchanges actually extend hours in September or October and trading begins.

Where to Go

What the world does know, though, is that some online investors will have a few alternatives before the exchanges jump in.

Morgan Stanley Dean Witter's (MWD) Discover Brokerage and Dreyfus Brokerage have taken steps to get to extended trading first by signing up with alternative trading system Eclipse Trading. The electronic after-hours system is due to start operating in July, trading from 6:30 p.m. to 8:30 p.m. Market makers that have signed on include Bernard Madoff Investment Securities, Herzog Heine & Geduld and Salomon Smith Barney.

A Discover customer -- or even a customer whose online brokerage decides to ally itself with Herzog or one of the other market makers -- will be able to simply log on, check whatever research, news or quotes he or she is interested in, place an order and receive a confirmation, just like during normal trading hours.

More online brokerages may offer evening trading, too, as it becomes clear how much of a lead role the existing electronic communication networks, which match buy and sell orders, take in the efforts.

Instinet, the electronic order matching unit of Reuters, has said it wants to make its service, typically an institutional one, available to retail customers but hasn't set a timetable for that change.

And Datek Online Holdings' Island, along with some other electronic communication networks, already allows daytraders with direct connections to the ECN to trade some Nasdaq stocks for about an hour both before the market opens and after it closes.

Island President Matt Andresen has said that as soon as there is demand, Island could start 24-hour trading. That could open its usually sizable liquidity pool -- about 200 brokerage and institutional subscribers -- to all types of investors.

Island posts quotes on its Web site before the market opens and after it closes.

One small brokerage, CyberBroker, which offers a software-based trading program designed for active traders, on Wednesday said customers will be able to trade off-hours through several ECNs.

And in what may be a step toward extended trading at E*Trade (EGRP), customers this summer will be able to choose during traditional hours to trade through the Archipelago ECN. E*Trade bought a 25% stake in the ECN earlier this year, in part to enable extended trading.

What to Know When You Get There

When Discover clients start trading with Eclipse this summer, they will find a new attribute on its trade page. Eclipse's entire order book will show up, including the investor's own buy or sell order as it moves up the total list of orders.

That's not too different from what happens with an online order during traditional trading hours, but night owls haven't enjoyed the same luxury. Currently, an order placed after 4 p.m. will be put into a queue to be executed the following morning.

Peter Quick, president of Quick & Reilly, a unit of Fleet Financial (FLT), says one thing online investors will have to be aware of is how after-hours news could affect shares in thinly traded stocks.

During the day, when news is released on a company that creates an imbalance in sell and buy orders, an exchange can step in and halt trading. In an after-hours market where ECNs are dominating, that halt wouldn't necessarily happen.

The fear, Quick explains, is that ''unsuspecting investors might be disadvantaged.''

That scenario could be even worse in a market that is bound to be thinner than it is during standard trading hours.

"There could be markets that are 5 or 10 points wide" between the bid and ask prices, says Mr. Stock CEO Alan Suslow. "It could be so illiquid, it's frightening."

Chris Delzio, an options floor trader turned bond salesman, offers one piece of advice to extended hours investors: "Go strictly with limit orders. In an illiquid market, stock prices tend to float around," leaving investors vulnerable to buying something at an inflated level.

ECNs, however, are the province of the limit order, so investors simply won't able to approach them very differently. Once Nasdaq market makers and the Big Board get involved, however, the choices will increase, as will the peril.

The U.S. markets soon will be open for business until 9 p.m. ET. What is your interest in getting into the night moves? a) Rest is for the Dead. I'm ready to trade as late as I can. b) I'll pick my spots and spend some quality time with the kids. c) Leave Me Alone! Fox is showing World's Most Painful Molar Extractions tonight. I'm not trading.

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