By Paul R. La Monica
Cold pizza goes stale fast. Just ask traders of Domino's Pizza. The chain's stock recently popped 8% after hours on news that Warren Buffett's Berkshire Hathaway had acquired a $550 million stake. The next morning, the stock cooled off and closed down 1%, leaving a bad taste for traders who had bought it piping hot the night before.
Such are the perils of trading after hours. But if you can bet on cryptocurrencies, sports, or the next president at all hours of the night, why not stocks?
The idea is gaining traction on Wall Street. Brokerages and exchanges are steadily extending trading hours to a 24/7 world. Tech upstarts are pushing for approvals to launch new all-hours trading venues. Regulators in the incoming Trump administration may also be amenable, especially at the Securities and Exchange Commission, where Trump is likely to appoint a chair far friendlier to Wall Street than Gary Gensler.
Even without more regulatory easing, brokerages have steadily expanded stock trading to the wee hours. Interactive Brokers Group, Robinhood Markets, Charles Schwab, and Webull now offer varying degrees of 24/7 trading, along with upstarts like Moomoo Technologies.
At Robinhood, whose stock is on a tear this year, trading Bitcoin or Apple at 3 a.m. on your phone has become seamless. The brokerage has expanded after-hours trading to 900 tickers. Since the service went live in 2023, total after-hours trading volume has amounted to $40 billion, still small but growing steadily.
"New product innovations like 24-hour markets have been very, very popular and meaningful recently. We've seen a lot of growth in that," said CEO Vladimir Tenev at an investor conference in September.
Big exchanges want more of the action. Intercontinental Exchange, owner of the New York Stock Exchange, announced plans in late October to extend its NYSE Arca electronic platform to 22 hours a day -- from 1:30 a.m. to 11:30 p.m. Eastern Time -- five days a week. While the SEC still has to sign off, that seems likely in a Republican-led agency.
Off-hours trading took off during the pandemic, according to the NYSE, and has accelerated since then. Total off-hours volume was 5.5% of overall daily volume in 2019. This year, it's running at 8.7%, with more than a billion shares trading off-hours, on average, up from nearly 760 million in 2023. Off-hour trading's dollar value has jumped from 6.7% to 8% of all trading.
Traders in Asia seeking access to U.S. equities on their business hours are one of the big growth drivers. Webull launched 24-hour trading five days a week for Asian markets in May, and has since expanded it to U.S. customers. Another brokerage, Tastytrade, is planning to launch 24-hour trading in early 2025.
"People want to trade when they want, and investors in other markets want to trade U.S. stocks when they are awake," says JJ Kinahan, CEO of IG North America, parent of Tastytrade. "It's selfish to think that the only time people want to trade is during U.S. business hours."
Young Americans accustomed to buying anything 24/7 are also fueling the growth. "An electronic exchange not functioning around the clock is like Amazon not being open," says Steve Quirk, chief brokerage officer of Robinhood, which expanded stock trading to 24 hours a day, five days a week in 2023. Robinhood customers "think of the markets in different ways," he adds. "It's not about the opening bell and closing bell."
For now, overall premarket and after-hours volume is typically less than 10% of the average 11.3 billion shares traded daily on the NYSE and Nasdaq during regular business hours. Even 700 million shares changing hands is relatively small, and volume thins out through the night.
Much of the action happens around quarterly earnings releases, where volatility has been rising. Stock moves on earnings days this quarter were at 15-year highs, averaging gains or losses of 5%, according to Goldman Sachs. Up moves were more pronounced this quarter, and the figures are well above the historical average of plus-3.7%.
But because of meager volumes, trading is dicey and gets even riskier in extended sessions after 8 p.m. While stocks may respond to an earnings release with wild swings, the moves are often fleeting -- reflecting thin volume even for giants like Nvidia, compared with the full suite of traders who weigh in the next day.
Trading commissions tend to be the same, day or night. But bid/ask spreads are wider after hours, meaning you won't get the best market price, even for highly liquid names.
Another quirk is that most brokerages restrict traders to limit orders after hours. That can have benefits in a highly volatile market with low liquidity, but an order may not be executed if the price doesn't hit the limit, or it may be only partially filled.
Brokerages say limit orders protect small investors. "If you are trading when there is lower liquidity, there are more chances for larger investors to pick people off," says Steve Sanders, head of marketing and product development at Interactive Brokers, which launched overnight trading in 2022.
If you dip into the after-hours pool, you'll be swimming with sharks. Hedge funds, proprietary traders at banks, algorithmic funds, and non-U.S. traders tend to dominate. Those traders are active during day sessions, of course, but a broader market dilutes their influence. That means there's better price discovery during regular sessions. After hours, snippets of information get amplified, resulting in more-volatile moves that may not be confirmed in the cold light of morning.
"Retail investors taking part in extended sessions would be trading in a market where prices are bound to be more volatile and less favorable than during normal trading hours," says Benjamin Schiffrin, director of securities policy at Better Markets, a nonprofit financial advocacy group.
Brokerages and exchanges that feed off volatility get paid no matter what, of course. So do firms running "dark pools" that handle extended trading. Companies like ICE, Citadel Securities, Susquehanna, and Cboe Global Markets all benefit from, and have vested interests in, expanded trading. So do brokerages like Robinhood, which has added after-hours to a growing suite of trading services.
There would be benefits to a broader and deeper after-hours market. Ideally, it would lead to more volume, narrower bid/ask spreads, and better price discovery as information is digested by a deeper pool of traders.
It may also reduce the odds of an outage, which has been a drawback in the space. Start-up Blue Ocean, for instance, runs an alternative trading platform that executes trades for brokerages. It suffered an outage in the early hours of Aug. 5, as U.S. market futures tumbled on worries about a Bank of Japan interest-rate hike. Robinhood was forced to briefly shut down its 24-hour trading service, and the outage had ripple effects at other brokerages.
"Aug. 5 was awful with Blue Ocean," says Neil McDonald, CEO of Moomoo. Robinhood's Quirk adds that Blue Ocean "couldn't handle the larger volumes, and we all got caught by that."
Blue Ocean CEO Brian Hyndman says the outage was due to a software update that was happening right as volume spiked, crashing the system. "We had an outage, and we take responsibility for it," he says, adding that the issues have been addressed.
One hurdle for stocks to go the way of 24/7 crypto trading is that the actual people on Wall Street may not be thrilled. Traders, investment bankers, and salespeople all count on the 4 p.m. close to go out and schmooze clients, hitting the bars and steak houses to drum up business.
"Nobody is clamoring for a 24-hour office in New York City. Now you're not going to sleep, and people work hard enough already," says Anthony Denier, group president of Webull, adding that brokerages "would need to pay for additional staffing" to make 24/5 trading more seamless for customers.
Some brokerages are being cautious. Schwab allows 24-hour trading only with limit orders for stocks in the S&P 500 and Nasdaq 100 indexes and exchange-traded funds. "There are no meme stocks," says James Kostulias, head of trading services, referring to names like GameStop and AMC Entertainment Holdings that can't be traded after hours at Schwab.
Advisory firm Betterment isn't a fan at all, refusing to allow 24/7 trading in its client portfolios. "We see more people make impulsive decisions after hours, especially if it's on your phone," says Dan Egan, the firm's vice president of behavioral finance and investing. Betterment has even coined a phrase for this behavior -- "slupid" -- a combination of being sleepy and stupid. "Don't trade slupid," Egan says.
One technical hurdle is that clearing and settlement services may simply need a timeout to process transactions. The Depository Trust and Clearing Corp., which handles settlement for equities, told Barron's that it is "actively engaged" with brokerages and exchanges but had no official announcement about expanding services to handle more overnight trading.
With Trump's deregulatory agenda coming, brokerages, exchanges, and start-ups may be just starting to jostle for orders in a 24/7 world. "I firmly believe that in under five years we will wonder why stock markets were not continuously open. Crypto doesn't sleep," says Robinhood's Quirk.
Whether stocks should go the way of crypto is another question entirely.
Write to Paul R. La Monica at paul.lamonica@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
November 21, 2024 01:30 ET (06:30 GMT)
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