Afraid of the Dark

At my office, we call after-hours stock trading “the badlands.” That’s because anything goes–information is unevenly disseminated, and scalpers take advantage of any angle they can muster. If you are quick, you prosper; if you are slow, you die. Casualties are high. Now both NASDAQ and the New York Stock Exchange want you to venture into those badlands. Both exchanges made it clear last week that the 4 p.m. closing bell will signify nothing come fall. The markets will stay open till 9 p.m. or 10 p.m.

The exchanges say online traders are demanding longer hours, and darned if they shouldn’t have a chance to have them.

There is only one problem. The whole existence of a fair market in which to raise and invest capital depends on ample liquidity and equal access to information for all. Right now, the hours between 9:30 a.m. and 4 p.m. E.T. present the most honest, open and, yes, perfect market in the world. That’s when the institutions know they can handle high volume and be assured of the best executions, the cherished “market order.”

After 4 o’clock, the trading werewolves come out, and the propensity to be picked off is way too great for all but the most daring. How can I be so sure? Because for years I have traded after hours using an Instinet machine. That system matches up institutional buyers and sellers when the formal exchanges are closed. Now, when it comes to trading I try to be a true boy scout. But I cannot tell you how often I have seen remarkably prescient buying and clairvoyant selling in after-hours trading. Stocks jangle up and down as if on a string, prone to manipulation by institutions trying to color trading.

The industry itself is far from ready for the longer hours, with a whole host of questions unanswered. Do we value mutual funds at 9 each night? Who is going to mind the store? And when do companies time news releases? Right now much of it is done after 4 p.m., after the bell.

Does that mean it’s wrong to extend the hours? Personally, as a father and a husband, I wish they wouldn’t. I love stock trading, but I get enough during daylight hours. Right now this job gets me home in time for dinner, to see the kids, to have a semblance of a regular life. If I want to be a conscientious money manager, it’s goodbye to all that.

I know, I know, lots of people are putting in longer hours, and as a highly paid Wall Streeter I should just shut up and deal with it. After all, trading stocks has become the national pastime, and as in the case of its predecessor, day games just don’t draw enough crowds. Night sessions will open up a huge West Coast market and add those individuals who can’t day trade because their bosses won’t let them. If the exchange doesn’t harness this audience, competing entities certainly will.

Just extending the hours, however, won’t make it fair. Only the coming together of billions of dollars in institutional money makes a market work efficiently and properly. And that can only be assured to happen between 9:30 and 4. That’s why you should fear coming to the badlands. The professional sharpshooters are always looking for some fresh after-hours blood. They await your arrival–the sooner the better. Don’t say I didn’t warn you.

James J. Cramer runs a hedge fund and writes for thestreet.com This column should not be construed as advice to buy or sell stocks