MW Don't sweat the closing bell. It's easier than ever to trade stocks around the clock.
By Gordon Gottsegen
24-hour trading is a boon to international investors - especially when an after-hours event moves markets
Trading U.S. stocks is relatively convenient if you live on the East Coast. Markets open at 9:30 a.m. and close at 4 p.m., meaning traders have plenty of daylight hours to put orders in. It's less convenient if you live on the West Coast and have to be up early to catch market open. It's even worse if you're a trader in Japan who wants to access U.S. exchanges.
For the past few years, there's been a push by different players in the financial industry to expand extended-trading hours and 24-hour trading. Not only do new advances in technology make this possible, but the increasing globalization and growing access to capital markets means the need for this around-the-clock trading has never been greater.
The concept of 24-hour trading isn't an entirely new one. U.S. futures markets are usually open from Sunday evening to Friday afternoon Central time, with certain holidays affecting trading hours. Commodity markets are also generally open around the clock on weekdays. Meanwhile, crypto trades 24/7 and is processed immediately.
But normal trading hours for the major U.S. stock exchanges are much more limited - and have been the same since 1985.
Read more: A brief history of trading hours on Wall Street
Exchanges also offer limited premarket and after-hours trading, and there have been pushes to expand that access. The New York Stock Exchange recently announced that it's planning to extend trading hours for its electronic Arca Exchange, with new hours from 1:30 a.m. to 11:30 p.m. Eastern time. That means trading 22 hours a day, up from the current 16 hours.
Brokerages are working to expand extended trading hours, too. Charles Schwab Corp. $(SCHW)$ recently announced that it's expanding its 24-hour trading, giving its customers the ability to trade all the stocks in the S&P 500 SPX and Nasdaq 100 NDX, as well as hundreds of exchange-traded funds. Schwab already offered 24-hour trading before this week's announcement, but it was limited to a few dozen ETFs.
For many brokerages, Blue Ocean Technologies plays a big role in helping expand access to 24-hour trading. Blue Ocean manages an alternative trading system that operates from 8 p.m. to 4 a.m. Eastern time, and according to the company, it's the only firm that does so.
Alternative trading systems are similar to stock exchanges, so brokerages and other market participants are able to partner with Blue Ocean to trade on its ATS. Over 50 brokerages use Blue Ocean's ATS, among them Robinhood Markets Inc. (HOOD), Webull, Futu Holdings Ltd. $(FUTU)$ and DriveWealth.
Read on: 'Trading hours haven't changed since the '80s': Robinhood's Tenev talks about 24-hour stock trading as skeptics question need
Why are so many brokerages expanding into 24-hour trading? A major reason is to serve investors across the world.
"The majority of our business is coming from the [Asia-Pacific] region," Brian Hyndman, Blue Ocean's president and chief executive, told MarketWatch. "You see different geographical areas like South Korea, the real hotbed where a lot of volume comes from. Now we're starting to see it come out of Hong Kong. We're starting to see it come out of Tokyo, Singapore and, soon to be, Australia."
Hyndman pointed out that Asian traders are sleeping when the U.S. markets are open, so Blue Ocean is a real boon in providing access during Asian daylight hours.
Wider access means more traders are leaning into overnight trading. Blue Ocean said roughly 30 to 40 million shares are traded on its platform on any given night. Interactive Brokers Group Inc. $(IBKR)$ told MarketWatch that overnight trading increased 469% on its platform from the start of 2024 to the end of October.
With this growing volume comes the need for more robust systems that power 24-hour trading. Earlier this year, Blue Ocean partnered with the tech-savvy MEMX stock exchange to provide exchange-level order matching. This move was expected to increase Blue Ocean's capacity several hundredfold.
Blue Ocean finished migrating its systems on Aug. 15, but right before it completed the transition, it was reminded why it needed this more powerful technology in the first place.
On Aug. 5, Asian stock markets tumbled as a surprise climb in the Japanese yen led to a mass unwinding of the yen carry trade. This caused a large uptick in volume for overnight trading, which ended up temporarily crashing Blue Ocean's platform. The tech transition that Blue Ocean completed days later should help prevent similar crashes from happening in the future. However, the event was a wake-up call.
When an international or market-moving event happens after market close, traders flock to these extended-hour trading platforms. That could cause these systems to experience huge upticks in volume relative to a normal night.
Steve Sanders, the executive vice president of marketing and product development for Interactive Brokers, told MarketWatch that his brokerage also saw a jump in overnight activity in August related to the turmoil in Japanese markets. Despite the jump, Interactive Brokers' overnight trading platform was able to handle the volume.
"You have to be prepared. It doesn't happen that often, but when it happens, everybody wants to come in at the same time," Sanders said.
"We've experienced these black swan events over the years. And that's what we have to plan for and prepare for, because they could happen at any time without any kind of indication," he continued.
Not offering 24-hour trading is one thing. But if you're a brokerage that does offer after-hours trading, clients expect it to operate similarly to trading during normal market hours - even if the two are fundamentally different on the back end.
"Trading outages would meaningfully affect a brokerage's share price if it affected the company's reputation for reliability. Most investors would probably be forgiving of an occasional outage. However, if it was frequent, then that would be an issue. Additionally, if someone's livelihood depended on the ability to trade, such as the brokerage having an institutional offering for financial advisers or asset managers, then outages would be more serious," Michael Wong, sector director for Morningstar, told MarketWatch in an email.
Our financial systems are more globally connected than ever, so events that happen on the other side of the world often affect international markets. Traders have seen this happen with the yen carry trade, in the Russia-Ukraine war and as tensions between Israel and its neighbors escalate. All of these events have the potential to move markets outside of normal U.S. market hours.
Even U.S. events could shake markets outside of normal trading hours. Look no further than the upcoming U.S. presidential election, which will be developing overnight as states count votes and which may take weeks to call. A clear winner could be declared at any moment during the day or night - or even on a weekend.
Sanders, who has been at Interactive Brokers for over 23 years, said that he usually sees trading activity and new account openings slow down right before an election. But as soon as the winner is declared, volatility picks up in either direction.
A spokesperson for Schwab said that the night of the 2016 election was the busiest night for Ameritrade's overnight futures trading.
But a surge in election-related overnight trading volume doesn't really worry Sanders.
"I am more concerned about the things that I don't know are coming up than the things I am aware of," he said.
-Gordon Gottsegen
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
November 04, 2024 07:00 ET (12:00 GMT)
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