Pro Traders React To Robinhood Extending Trading Hours: 'Caveat Emptor'

Shares of Robinhood Markets Inc HOOD soared 24.2% on Tuesday after the popular stock trading app announced an extension of trading hours for customers by an additional 6.5 hours per day.

What Happened? Robinhood's huge stock gain was its single biggest one-day move since it gained more than 50% on Aug. 4, 2021. Investors are understandably excited about the impact an extra 2.5 hours of trading in the morning and four extra hours in the evening could have on Robinhood's revenues and profits.

Robinhood users can now begin trading in the premarket session starting at 7 a.m. EDT and continue trading in the after-hours session until 8 p.m.

There's no question Robinhood's decision to open up premarket and after-hours trading will lead to more trading activity on the platform, but pro traders say there could potentially be negative fallout for Robinhood down the line.

The platform has already been criticized for encouraging the "gamification" of stock trading, and a significant portion of its trading activity in recent years has come from high-risk meme stocks like AMC Entertainment Holdings Inc AMC and GameStop Corp. GME and high speculative cryptocurrencies like Dogecoin DOGE/USD.

Related Link: Robinhood Extends Hours In A Step Toward 24/7 Trading: Here's How 9 Other Brokerages Compare

Why It's Important: Joe Saluzzi, one of the partners and co-founders of Themis Trading, told Benzinga the wild swings Robinhood users are used to in regular trading could be amplified to the extreme in after-hours trading due to the lack of liquidity in the market.

"Liquidity is much sparser and rules that apply during the day such as the Order Protection rule do not apply outside of normal hours," Saluzzi said.

"While Robinhood and other retail brokers have every right to offer extended hours trading, my advice to the retail investor would be caveat emptor."

Benzinga's PreMarket Prep co-host and proprietary trader Dennis Dick says after-hours trading is completely different from trading during regular hours.

"Liquidity on most names drops significantly after 4 p.m. on most stocks, meaning retail traders are more likely to move the price substantially when looking to get a quick execution," Dick says.

He says many market-moving news headlines break after the 4 p.m. close, so it is critical that after-hours traders have a good source for breaking news, such as Benzinga Pro.

"I worry that many traders will trade these markets uninformed, and that would likely lead to a transfer of money from retail to professionals," Dick says.

Benzinga's Take: Supporters of the decision to open up Robinhood to after-hours trading likely argue that more access for retail traders is a good thing and can help even the playing field for the little guy to compete with pros on Wall Street.

Critics of the decision likely see it as yet another example of Robinhood embracing its reputation for encouraging young and inexperienced users to treat the stock market like a casino rather than a way to responsibly build wealth over the long-term.