About two months ago, Richard Sfraga shook himself from an after-dinner nap with one thing to do before he hit the sack for the night.

He dragged himself off the carpet of his Staten Island home at 10 p.m. to sit at his computer, where he accessed his

Charles Schwab

(SCH)

account and bought 100 shares of

Prodigy

(PRGY)

. Yet despite the move, he had no idea how much he'd pay for the shares until the next morning.

It's this kind of uncertainty that has online traders such as Sfraga eagerly awaiting the approval of

Nasdaq's

plan to add four hours to the trading day so their orders can be executed in a more nocturnal setting. The

New York Stock Exchange

also is considering extending trading hours.

Some of the structural challenges of longer trading days may have traders working swing shifts and the back-office folks trying to ratchet up the speed of trade settlements.

But the key issue to be tackled before evening traders such as Sfraga celebrate more time to buy and sell

Yahoo!

(YHOO)

involves liquidity. They'll have to realize that there may be fewer people on the other side of their trades, a factor that may pose the biggest threat to the elongated trading day.

"You'd have to assume that any trading activity done away from the main session of the day would have a very different liquidity character," says Robert Fagenson, president of specialist firm

Fagenson & Co.

and an NYSE floor governor.

A lack of liquidity can wreak havoc on investors and damage the credibility of the extra sessions. After-hours stock trading on

Reuter's Instinet

and futures trading on

Globex

are useful but limited because mild volume can cause abnormally large price fluctuations.

"We don't know what we're unleashing," says Joe Anastasio, head of U.S. operations for

The Capital Markets

, a financial technology consulting firm. "It may be a nonevent, but it also may attract significant volume. Either way, there are questions. What happens to the infrastructure? When does the day end? And what will the impact be on risk management?"

On May 27, the Nasdaq Board of Governors will vote on whether to start a pilot program in which 100 to 500 of its largest stocks would trade from either 5 p.m. to 9 p.m. or 6 p.m. to 10 p.m. EDT, according to a spokesman for the

National Assocation of Securities Dealers

, which runs the Nasdaq. The NYSE has similar plans in the works for its ADRs and most heavily traded stocks. In addition, some well-placed traders say preopen trading plans also are on the horizon at both organizations.

Thomas Weisel, head of San Francisco-based brokerage firm

Thomas Weisel Partners

, says extending trading hours isn't a good idea. "I don't think it will provide more liquidity," he says. "I think the current hours are enough."

What hasn't been determined is whether extended-hours trading will simply be an order-matching system where buyers can find sellers and vice versa or an actual trading environment involving market-making firms, which are obligated to take the opposite side of customer orders to ensure liquidity.

In the organization's canned comment on the issues, NASD President Richard Ketchum said market-maker participation is voluntary.

A lack of liquidity has scotched some previous extended trading hours forays, one in London by the bygone

E.F. Hutton

and

Merrill Lynch

(MER)

. They tried to make markets in U.S. stocks off of their London trading desks in the 1980s.

"The problem was that you'd get a 25,000-share order for Telephone

AT&T

(T) - Get Report

from an institution, and all of a sudden you're up there half naked," says one brokerage executive who was involved in those attempts. "You have to ask, 'Do I want to put up the capital?'" to take one side of the trade.

When a firm internalizes significant order flow -- buying the shares that investors want to sell, or selling the shares investors want to buy -- without the opportunity to hedge or allocate some of that position to another organization, it becomes vulnerable to a swift move in the stock.

Consultant Anastasio agrees. "The technology is there, but technology hasn't figured out how to create liquidity. The market needs someone to step up and take the risk of creating liquidity," he says.

Bernard Madoff, of market-making giant

Bernard L. Madoff Investments

, is stepping up, at least in the

Eclipse

electronic communications network, an electronic trading marketplace, in which his firm will post its own bids and asks to provide liquidity. Madoff, and other market makers and NYSE specialists, may have to do the same in the Nasdaq and NYSE extended trading sessions.

When a firm such as Madoff's is making a market in nontraditional trading hours, there are fewer alternative parties to share the contra side of the trade or hedging instruments such as exchange-traded options contracts.

"If the primary markets are open, we have somewhere to lay off that risk," Madoff says. "For about 20 years, we've been trading U.S. stocks in Europe when the primary markets are closed. That is a more risky scenario." Madoff says his firm plans to conduct normal market-making activity during any extended sessions.

"There obviously is a need for liquidity, but volume brings liquidity and liquidity brings volume. It's a Catch-22," Madoff says.

Much of the rest of the securities industry is mum on the topic, but it will have to help its clients play. Merrill, for instance, will provide both execution and market-making activities if its client base wants to participate in the extra sessions, a spokeswoman says.

Another factor is how trading firms and market makers will staff the extra sessions if more than an order-matching system is put in place.

San Francisco-based Weisel Partners is considering moving some traders to New York if an earlier opening is prescribed. "I don't want to have to ask people here to come in at 2 a.m.," says Weisel.