Why can it be a bad idea to buy stocks after hours?

There are several reasons it is not recommended to trade stocks pre- or post-market, meaning outside of RTH (regular trading hours).

  • Liquidity is very low compared to RTH
  • Fills of market orders can be way off your ordered price (= possiblyhigher slippage than in RTH) because of low Liquidity
  • If you use a leveraged account, pre- and post-market margins aresignificantly higher than during RTH

Since your question is not very detailed I have to assume you trade with a time horizon of at least more than a day, meaning you do not trade intra-day. If this is true, all of the above points are a non-issue for you and a different set of points becomes important.

  1. Enter and exit trades during post-market or
  2. enter and exit trades at market open, using orders you enter one daybefore in the post-market session - those orders will be executedautomatically or
  3. enter trades via Limit and Stop Limit Orders exclusively

As a general rule, using (3) is the safest regardless of what and how you trade because you get price guarantee in trade for execution guarantee.In the case of mid to longer term trading (1 week+) any of those points is viable, depending on how you want to do things, what your style is and what is the most comfortable for you.

A few remarks though:(2) are market orders, so if the open is quite the ride and you are in the back of the execution queue, you can get significant slippage.(1) may require (live) data of the post-market session, which is often not easy to come by for the entire US stock universe. Depending on your physical execution method (phone, fax, online), you may lack accurate information of the post-market. If you want to execute orders based on RTH and only want to do that after hours because of personal schedule constraints, this is not really important.

Personally I would always recommend (3), independent of the use case because it allows you more control over your orders and their fills.

TL;DR:If you are trading long-term it does not really matter. If you go down to the intra-day level of holding time, it becomes relevant.

During market hours, there are a lot of dealers offering to buy and sell all exchange traded stocks. Dealers don't actually care about the company's fundamentals and they set their prices purely based on order flow. If more people start to buy than sell, the dealer notices his inventory going down and starts upping the price (both his bid and ask). There are also traders who may not be "dealers", but are willing to sell if the price goes high enough or buy if the price goes low enough. This keeps the prices humming along smoothly. During normal trading hours, if you buy something and turn around and sell it two minutes later, you'll probably be losing a couple cents per share.

Outside normal market hours, the dealers who continue to have a bid and ask listed know that they don't have access to good price information -- there isn't a liquid market of continuous buying and selling for the dealer to set prices he considers safe. So what does he do? He widens the spread. He doesn't know what the market will open tomorrow at and doesn't know if he'll be able to react quickly to news. So instead of bidding $34.48 and offering at $34.52, he'll move that out to $33 and $36. The dealer still makes money sometimes off this because maybe some trader realized that he has options expiring tomorrow, or a short position that he's going to get a margin call on, or some kind of event that pretty much forces him to trade. Or maybe he's just panicking and overreacting to some news.

So why not trade after hours? Because there's no liquidity, and trading when there's no liquidity costs you a lot.

Unless you want to be a short term day trader, then it is not foolish to be an end of day trader. If you are looking to be a medium to long term trader/investor then it is quite acceptable to put orders in after market close. Some would say it is even less risky, because you are not watching the price fluctuate up and down and letting your emotions getting the best of you.