Hi, everyone!Welcome to this session of the Tiger Academy, “Five Important Practical Points for US Stocks.”
We’re moving on from “Investment Basics” to “US Stocks Investing” In this lesson, I’ll show you the five important things you need to know about trading stocks in the US.
1.Ticker Symbols for US stocks.
Did you know that the code system for each of the stock markets in the US is different, and that company codes are generally formulated by the listed company itself? Using 2, 3, 4, or 5 letters, depending on the exchange, a company tries to create a stock code that will give it strong identification in the market. For example, the ticker symbol for Coca-Cola is KO, and for Apple it’s AAPL.
In daily trading, you may find an additional letter attached to the end of a stock symbol. For example, KO.N and AAPL.O, where the letters “N” and “O” stand for the exchange on which the stock is listed. The addition of an N means the company is listed on the NYSE, and an O means it’s listed on the Nasdaq.
There is also a rarely-used suffix letter “A” which is added to the symbols of stocks listed on the AMEX.
2. Trading units for US stocks.
Unlike the large trading units for Hong Kong stocks, the minimum trading unit for US stocks is one share. That means you can trade hundreds or thousands of shares in the US stock market, or you can trade two or three shares, depending on how much money you want to invest.
As an example, let’s say Amazon (AMZN.O) is currently trading at $3,380 per share. Based on that price, many investors might find it too expensive to buy. But if you buy only one share for $3,380, you can quickly earn $338 if the stock price goes up by only 10%, of course the inverse happens if the stock goes down by 10% , unfortunately. So do beware!
3.Trading hours for US stocks
Unlike the trading hours of other stock markets, the trading hours for US stocks are relatively long. Theoretically, trading can go on for more than 16 hours because orders can be placed on most exchanges before the market opens as well as after the market closes.
Normal trading hours for US stocks are usually between 9:30 a.m. and 4:00 p.m. Eastern Standard Time (EST). These are known as “intraday” hours. However, with the adoption of new technologies and increased demand for trading, these hours have been extended to include so-called “pre-market” and “after-market” hours.
Pre-market trading takes place between 8:00 a.m. and 9:30 a.m. Eastern Standard Time (EST), but can begin as early as 4:00 a.m. EST. Aftermarket trading begins at 4:00 p.m. and continues until 8:00 p.m. EST.
What’s the difference, you may ask, between “pre-market,” “after-market,” and “intraday” trading?
Firstly, pre-market and after-market trading, also known as overtime trading, refers to trading outside of normal hours. Not all brokerage firms support pre-market and after-market trading, but the Tiger Trade app does, and it provides pre-market and after-market quotations.
Second, it’s important to know that because of how trading works, there is no market price before the market opens or after it closes.
If you place a market order before or after market hours, you can only wait until the opening for the order to be filled. Don’t worry, if you don’t know what a market order is right now I’ll explain it a little later on in the course.
In addition to market orders not being filled, pre-market and after-market transactions are characterized by poor liquidity, price deviation, and prices not included in the K-line chart; because pre-market and after-market trading takes place outside of normal hours, the share volume is small, and so it is likely that there will be few buyers and sellers or that the price gap (the “spread”) between prices placed by buyers and sellers is too large to conclude a deal.
In addition, sometimes pre-market or after-market trading prices will deviate widely from the normal price, so neither pre-market or after-market prices nor opening or closing prices are included in the K-line chart. Only prices at 9:30 a.m. and 4:00 p.m. EST are counted as opening and closing prices.
Why extend the trading hours when there are so many drawbacks?
Pre-market and post-market hours are very important for investors to digest all kinds of news; when official market news is about to be announced, the usual practice is to first suspend trading in the subject stock and then announce it. When the news is released, it can lead to an instant sharp rise and then a sudden drop in the share price, thus damaging the interests of investors.
Therefore, pre-market and after-market announcements allow expected market volatility to be digested to a certain extent. A very common phenomenon is that the share price rises dramatically before the opening and then immediately falls upon the opening. This is commonly known as opening high and then going low. Of course, there is also the phenomenon of a share price slumping pre-market and then opening rapidly to the upside. These are the risks of pre-market and after-market trading.
With that in mind, let’s move on to the fourth knowledge point: limits on how much stocks can rise or fall.
In US stocks trading, there is no limit to pricing action. We often see certain stocks that rise more than 50% in a day. Of course, we also see stocks that fall more than 50% in a day as well, so Investors Do Take Note!.
There are a lot of investors who think it’s very cool to speculate in volatile US stocks. The shares of some companies can rise more than 10% a day, and it’s not uncommon to see many stocks jump more than 20% during earnings season. By all means, but the usual caveat will apply. Investors need to do their homework on the companies, and be aware of the potential volatility both up and down.
But severe and sudden drops in markets can trigger a trading halt known as a circuit breaker. The function of the circuit breaker is to shut down trading to prevent the market from crashing and to protect investors from making unreasonable emotional trading decisions that might cause market panic.
For example, in March 2020, four circuit breakers were triggered in the markets in the face of the continuing spread of the pandemic.
It should be noted that market circuit breakers are triggered by sudden drops in the S&P 500. When the S&P 500 index falls by 7% or 13% from the previous day’s close, trading will be suspended for 15 minutes, and when the index falls by 20% from the previous day’s close, trading will be halted for the day.
In addition to trading on an exchange being halted, individual stocks may also trigger a suspension of their trading. There are two kinds of trading suspensions for individual stocks: a non-regulatory mandatory suspension and a regulatory mandatory suspension.
For example, if a company makes an announcement of a significant event or if the share price rises or falls by more than 10% within 5 minutes, it may trigger a pause in the trading of that stock. This kind of pause will generally not last too long, usually a few minutes or so. The purpose of the trading halt is to give investors time to digest and absorb the news and to avoid sharp fluctuations in the price of the stock.
However, the SEC imposes a regulatory suspensions of stock trading on a case-by-case basis and so it is difficult to say how long that type of trading halt might last.
Finally, let’s talk about the fifth knowledge point: how long will it take for US stock redemption?
This is an issue that concerns every investor. When trading US stocks, you must be familiar with two basic systems: the T + 3 delivery system and the T + 0 trading system.
1. T + 3 delivery system
T+3 means that buyers and sellers pay money and deliver securities through a settlement system. Prior to the end of the T + 3 period (T refers to the day of the trade), you cannot withdraw cash or physical stock, nor transfer custody of purchased shares. That is, the delivery of funds will be received on the third working day following the trade date.
This means that if you sell a position of shares, you will not have access to the proceeds of the sale for three trading days.
2. T + 0 trading system
This system is used for intraday trading; that is, stocks can be bought and sold on the same day. However, the T + 0 system is a double-edged sword. The quick settlement not only facilitates the closing of transactions, it also increases the risk associated with an increased ability to trade more frequently.
As a result, the SEC regs state that if four or more intraday trades are executed within five trading days, or if those trades account for 6% or more of the total number of trades executed in the same period, the holder of the account will be considered a “day trader.”
The total value of assets (including cash, shares, or other liquid assets) held in a day trading account must be more than $25,000. If the investor’s trading behavior meets the definition of a day trader, but the account assets are less than $25,000, all stock trading in the account will be frozen for 90 days, or until the investor’s account assets reach $25,000.
It should be noted that the Tiger Trade APP prime account has no capital limit and can be used to conduct unlimited intraday trading.
Well, that’s all for the five basics of US stock trading. Let’s review today’s highlights: (Mind Map)
1.The Ticker Symbol for US stocks.
2. The trading unit for US stocks.
3.The trading hours for US stocks
4.The price limit for US stocks.
5. How long will it take for U.S. stock redemption?
Learning the five important knowledge points in this lesson is key to understanding how the US stock market operates. In the next lesson, I’ll take you through how to make good use of this knowledge for investing in US stocks.
See you in the next class!
NZ Disclaimer
This video is made for educational purpose only. It is neither financial advice nor recommendation on buying or disposing financial products. Stock investments carry risk, stock market can be volatile and risky, including risk of losing an amount in excess of your initial investment. This video does not consider your investment goal or objective, Tiger Brokers assumes no warranty or responsibility for the accuracy and completeness of the information. Past performance is not an indicator of future performance. Please read our risk disclosures and you may need to do your own research or seek professional advice before using the services of Tiger Brokers and making investment decisions. please visit https://www.tigerbrokers.nz/ for more information.