After market orders (AMOs) allow for the placement of trade instructions outside of standard market hours. These orders are executed at the market's opening, providing flexibility for investors who cannot actively monitor markets during regular trading sessions. Regular market hours are typically limited to the time when the exchange is officially open for trading. However, with the advent of technology and electronic trading platforms, many digital stockbrokers like the Bajaj Financial Securities Limited (BFSL) now offer the option to place orders before the market opens or after it closes.
How does after-market order (AMO) work?
AMOs work similarly to regular market orders, but they are executed during the pre-market or after-market trading sessions. When the regular market opens, the AMO orders are sent to the exchange, and they are executed based on the prevailing market conditions at that time.
Here’s a real-life process of how an AMO works:
| Day | Action |
| Friday (after market closes) | Let’s say a trader places an AMO with a broker to buy or sell a security at the opening of the market on Monday. |
| Saturday (markets closed) | The AMO is held by the broker until 8:58 am of the next trading day. |
| Sunday (markets closed) | The AMO is held by the broker until 8:58 am of the next trading day. |
| Monday (right after the markets open) | The broker sends the AMO order to the stock exchange at 9:00 am. Your order is executed at the opening market rate once trading on the stock exchange begins at 9:15 AM. |
Features of After Market Orders (AMO)
After Market Orders (AMO) offer distinct advantages for investors seeking to place trades beyond standard exchange hours. Here's a breakdown of their key features:
- Convenience: AMOs allow order placement outside of regular trading sessions, providing flexibility for individuals with busy schedules or those unable to monitor markets during active hours.
- Execution timing: AMOs are queued for execution at the commencement of the subsequent trading day, enabling investors to react to overnight news or anticipated market movements.
- Order flexibility: AMOs typically support both market orders, which aim for immediate execution at the prevailing price, and limit orders, which specify a desired price for execution.
- Modification and cancellation: Investors retain control over their AMOs until the pre-market session begins. This allows for adjustments based on breaking news or unforeseen market changes.
- Please note: It's important to consult your broker regarding specific functionalities and limitations associated with AMOs on their platform. Certain order types, like bracket orders and cover orders, might not be available for AMO placement.
Types of After Market Orders
While standard market orders and limit orders are the foundation of after-market orders (AMOs), there are some key distinctions to consider:
1. Limit orders
- The most prevalent type of AMO, allowing you to specify a maximum purchase price or a minimum sale price.
- Ensures your trade executes at your desired price or better, but there's no guarantee of execution if the market doesn't reach your specified price point during the next trading session.
2. Market orders (less common)
- Less frequently used with AMOs due to the unpredictable nature of after-market trading.
- Instructs the broker to buy or sell a security at the best available price when the market opens.
Important considerations
- Limited order types: Unlike regular trading hours, AMOs typically don't support more advanced order types like stop-loss orders or disclosed quantity orders.
- Price discovery: After-market trading volumes are generally lower, potentially leading to execution prices that differ from your expectations.
Example
To grasp the concept of After Market Orders better, let's consider an example involving Ravi, a retail investor.
Ravi has been closely monitoring the stock of an Indian pharmaceutical company, Medico Ltd. He anticipates that an imminent regulatory approval for one of their blockbuster drugs will cause the stock's price to surge. On a Friday evening after the market closes, Ravi decides to place an AMO to purchase 200 shares of Medico Ltd. at a limit price of ₹500 per share. His analysis suggests that this price is justified.
Over the weekend, Ravi learns that Medico Ltd. has indeed received the anticipated regulatory approval, causing excitement among investors. When the stock market opens on Monday, Medico Ltd.'s stock price jumps to ₹550 per share, surpassing Ravi's limit price. Ravi's AMO gets executed at the prevailing market price, resulting in a profitable trade.
In this example, Ravi effectively utilises an After Market Order to capitalise on a positive regulatory development and profit from the subsequent price increase.
Risks of using AMO
- Market volatility: The price of a stock can move significantly due to developments after-market hours, so it is important to be aware of the risks involved before placing an AMO.
- Order execution: There is no guarantee that an AMO will be executed at the price that you want. The price of the stock could move against you, and your order could be executed at a loss.
- Margin requirements: Some brokers may require you to maintain margin on AMOs. This means that you will have to deposit a certain amount of money with the broker before the order can be executed.
Additional read: Know more about Day Trading for Beginners
Benefits of using after-market orders
After-market orders (AMOs) offer several benefits to traders and investors, enhancing flexibility and accessibility in the stock market:
1. Convenience for busy individuals:
After-market orders cater to individuals who have commitments during regular market hours. This feature enables them to trade or invest in the Indian stock market at a time that suits their schedule, ensuring a fair opportunity for participation.
2. Flexibility to cancel or alter orders:
One of the significant advantages of AMOs is the ability to cancel or modify orders at the investor's convenience. This flexibility acts as a safeguard against unforeseen events or market developments that may occur outside regular trading hours, allowing investors to adapt to changing circumstances.
3. Accessibility across market categories:
AMOs are not limited to specific market segments. They can be used for various categories such as equity, Futures and Options (F&O), Forex, and commodities. This inclusivity provides traders and investors with the flexibility to apply AMOs to a diverse range of financial instruments.
4. Extended trading opportunities:
The Indian stock market operates on weekdays, with weekends and certain holidays designated as non-trading days. However, AMOs allow individuals to place orders on Saturdays, Sundays, and trading holidays without any hindrance. This extended access provides an additional layer of convenience for those who may be unavailable during regular market hours.
5. Versatility in trading alternatives:
AMOs offer the flexibility to be placed for various trading alternatives, including equity delivery (Cash and Carry or CNC), Margin Intraday Square Off (MIS), and Normal Order (NRML). This versatility caters to different trading strategies and preferences, allowing investors to customise their orders based on their specific objectives.
How to place an AMO
Let us understand how to place an AMO:
Access to trading platforms
Access to Trading Platforms
To place AMOs, you need access to a trading platform that supports after-market trading, like Bajaj Financial Securities Limited Platform (BFSL). Now-a-days most online brokerage platforms offer this feature.
Order Entry
When placing an AMO, you enter the same details as a regular market order, including the security's name, the quantity you want to buy or sell, and the order type (buy or sell).
Price Selection
You can usually choose between a limit price and a market price. Selecting a limit price allows you to specify the maximum price you're willing to pay (for a buy order) or the minimum price you're willing to accept (for a sell order).
Additional read: What is Intraday Trading
Tips for using after-market orders
1. Stay informed about earnings releases
Keep track of information provided by business entities regarding the release of earnings and whether after-market trading will be available. This knowledge can influence your decision-making process and help you align your trades with relevant market events.
2. Utilise trading and charting platforms
Leverage trading and stock charting platforms that offer information on pre-market and after-market orders. Familiarise yourself with these platforms to access valuable data and make informed decisions about your trades.
3. Confirm eligibility with your broker
Before engaging in after-market trading, confirm your eligibility with your broker. Some brokers may have specific requirements or restrictions related to after-market orders, so it's essential to communicate with them to ensure compliance.
4. Draft a strategic plan
Just as in regular trading hours, it's crucial to have a well-defined strategy before placing after-market orders. Consider factors such as market conditions, recent news, and your risk tolerance when formulating your plan.
5. Allow room for adjustment
Recognise the unique challenges of after-market trading, such as lower volume, increased spreads, and significant price changes. Draft your strategies with extra room for adjustment to accommodate these factors. This flexibility will be essential for adapting to the dynamic nature of after-market trading.
6. Be cautious with stop losses
Due to the increased volatility in after-market hours, traditional stop losses may be less effective. Be cautious with setting stop losses, as rapid price changes may result in slippage. Consider alternative risk management strategies that align with the specific conditions of after-hours trading.
7. Opt for smaller position sizes
Given the potential risks associated with after-market trading, consider opting for smaller position sizes compared to regular trading hours. This precautionary measure helps manage risk and mitigates the impact of unexpected price movements.
8. Monitor your investments actively
After-market trading requires active monitoring of your investments. Stay vigilant for any unexpected developments, news releases, or market shifts that could impact your positions. Adjust your strategy as needed based on real-time information.
9. Continuous learning and adaptation
Stay informed about market trends and continuously educate yourself on after-market trading. The ability to adapt to changing conditions is crucial, and ongoing learning will enhance your decision-making skills in this unique trading environment.
10. Evaluate performance and refine strategies
After each after-market trading session, evaluate the performance of your trades. Identify strengths and weaknesses in your strategies and make necessary adjustments. This iterative process will contribute to continuous improvement in your after-market trading approach.
Comparison with regular market orders
When comparing After Market Orders (AMO) with regular Market Orders, several key differences and considerations arise based on their execution timing, flexibility, and suitability for different trading strategies. Here’s a detailed explanation of their comparison:
Feature |
After Market Orders (AMO) |
Regular Market Orders |
Timing of order placement |
Placed after market hours, typically between 3:30 PM to 9:00 AM. |
Placed during market hours when the exchange is open. |
Execution timing |
Executed at the opening of the next trading day. |
Executed immediately during market hours at prevailing prices. |
Purpose |
Allows investors to place orders overnight for next day execution, reacting to overnight news or price movements. |
Used for immediate execution during active trading hours, reacting to real-time market conditions. |
Flexibility |
Provides flexibility for investors who cannot actively monitor markets during trading hours. |
Requires immediate decision-making based on current market conditions. |
Execution price |
Orders are executed at the opening price of the next trading day, known as the opening auction price. |
Executed at prevailing market prices during market hours. |
Risk and price discovery |
Limited ability to manage trades intraday but allows strategic planning overnight. |
Allows for real-time risk management and price discovery. |
Availability |
Offered by many brokers as a feature, enabling investors to plan and adjust trades after market close. |
Available whenever the market is open, allowing for immediate action. |
Convenience |
Convenient for long-term investors and those who prefer to trade outside market hours. |
Suitable for active traders and those requiring instant execution. |
Conclusion
After Market Orders (AMO) provide traders and investors with the convenience of trading beyond regular market hours. While they offer benefits like flexibility and the ability to react to news, it's essential to be aware of the potential risks associated with lower liquidity and increased price volatility during extended trading sessions. Placing AMOs requires access to a compatible trading platform, and traders should exercise caution when selecting order types and price levels. Ultimately, understanding how AMOs work can add a valuable tool to a trader's arsenal, enabling them to participate in the markets on their terms.
