For many investors, 4 p.m. on the East Coast is an important part of their day. This brief respite provides an opportunity to digest the day's events, analyze market trends, and formulate strategies for the next trading session. But for others, the day is just beginning—thanks to a growing demand in finance for more trading access.
This month, Charles Schwab joined financial services companies such as Robinhood in offering 24/5 trading to its clients, allowing the buying and selling of hundreds of stocks and ETFs during all hours of the workweek.
Steve Quirk, chief brokerage officer at Robinhood, says this shift has been driven by questions of why East Coast hours have to be followed by all, especially when asset classes like cryptocurrencies are open all hours of the day.
“If I want to buy stock ABC at $10, why can't we have an e-commerce world like Amazon?” says Quirk. “We clearly demonstrated that we don't need human beings standing on trading floors in order to facilitate that because of COVID.”
Even the New York Stock Exchange is exploring a break from tradition and extending weekday trading. However, for investors, it’s important to know both the potential benefits and risks to 24/5 markets.
The gradual extension of trading
Pre- and after-hours trading is nothing new. Investors have largely enjoyed being able to trade several hours following the traditional trading day of 9:30 a.m. to 4:00 p.m. Eastern via extended hours that last until 8:00 p.m. Eastern. TD Ameritrade was one of the first introducers of 24/5 trading, allowing individuals to buy and sell select stocks and ETFs throughout the entire workweek (Charles Schwab acquired TD Ameritrade in 2020). Since then, the practice has expanded to reach more financial institutions and stocks.
The benefits of 24/5 trading
Respond to breaking global news
News can happen in an instant, and it can have dramatic effects on the market, meaning investors have opportunities to make significant gains or losses.
“Being in the news cycles that we're in now, there are opportunities both to generate alpha and opportunities to mitigate risk in your portfolio, created by geopolitical events, created by news events,” explains James Kostulias, head of trading services at Charles Schwab.
On Election Night last year, Robinhood experienced 11 times their typical trading volume thanks to investors reacting to the state-by-state results leaning toward a Donald Trump victory.
“You saw stocks start moving well in advance of mainstream media declaring a winner,” he says. “The Teslas, the crypto space, a lot of tech stocks just took off,” Quirk adds.
React to earnings reports
Many companies release their quarterly earnings reports after the markets are closed. Similarly, an analysis of an earnings report or comments from a CEO can be released hours after traditional market hours. With 24/5 trading, investors can react to the developments by either selling or buying stocks.
Act on education and research
According to Quirk, a majority of Robinhood’s customers, who tend to be younger and newer to finance, conduct investment research at night when the market isn’t traditionally open. The ability to trade 24/5 allows individuals to act upon what they may have just learned without having to wait until the morning.
Realign your schedule
For individuals on the West Coast, the traditional trading day can begin before the sun even rises. A 24/5 market can make it easier for individuals across the U.S. to make trades that make sense for them—and not have to rely on the East Coast’s timeframe.
Moreover, markets and investors in Europe and Asia can become more integrated with the U.S.
The risks of 24/5 trading
Lower liquidity and increased volatility
With any change to the market, there is a risk of enhanced volatility. And with overnight trading having less liquidity, it can be more difficult to predict how the markets will move.
However, Quirk says they typically do not see excess volatility in the evening hours, and in the event, protections are in place. On Robinhood, for example, individuals can only place limit orders on overnight trades.
“We don't want people day trading in the middle of the night. That's not what it's designed for.” Quirk says. “It's designed for people who just want to set up a buy or sell at a certain price, and they're comfortable, and they don't really care when that gets executed.”
Not all stocks are available
Only select stocks and ETFs are available to trade on overnight markets. Each financial services company has different options. Charles Schwab allows the overnight trading of all S&P 500 and Nasdaq-100 stocks, plus hundreds of ETFs. During the company’s recent 24/5 pilot period, Tesla, Nvidia, Plantiner, MicroStrategy, and AMD received the most overnight trade activity.
Robinhood’s 24-hour market list includes 907 stocks and ETFs.
Mental health concerns
One of the benefits of traditional trading hours is that once the markets close, investors can generally escape from worrying about finances. 24/5 trading, however, opens a world of opportunity.
Kostulias says it's important for investors to realize they cannot undertake every opportunity in every sector. Instead, have a plan with defined risk strategies and solid entry and exit points. By doing so, burnout and mental toll can be minimized.
“Just because you can trade things you know, 24 five now and one day, 24/7 doesn't mean you have to or should,” Kostulias adds.
The takeaway: 24/5 trading is likely just the beginning
The world is becoming more interconnected by the day, and financial systems will continue to evolve. Take, for example, the cryptocurrency market. It has expanded in recent years to now have a multi-trillion dollar market cap, and part of its lure is that it defies traditional financial markets and allows for 24/7 exchanges.
For investors, it will be important to embrace appropriate changes because otherwise you could get left behind. At the same time, it is critical to strike a balance between pursuing the right opportunities while not stretching yourself or your bank account too thin.
