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Overnight Trading

Overnight Trading
TradingTrading Skills and EssentialsTrading SkillsTrading Basic Education

What Is Overnight Trading?

Overnight trading alludes to trades that are placed after a exchange's close and before its open. Overnight trading hours can change in light of the type of exchange in which an investor looks to execute. Not all markets have overnight trading. Overnight trading is an extension of after-hours trading.

Seeing Overnight Trading

Overnight trading incorporates a broad scope of orders that are placed outside of standard market hours. Across the financial markets, there are different roads for trading through various exchanges. The mainstream markets incorporate stocks and bonds. Alternative markets incorporate foreign exchange and cryptocurrencies.

Each market has standards for overnight trading that must be considered by investors while setting trades during off-market hours. For instance, some over-the-counter (OTC) products can not be traded outside of business hours. The foreign exchange (forex) market, then again, doesn't close during the week, so there is no true overnight trading as in it is open at the entire hours besides on ends of the week.

Outside of normal market hours, which for the U.S. stock exchanges is normally 9:30 a.m. to 4:00 p.m. ET, liquidity is commonly lower. This means less participants, larger bid-ask spreads, and possibly flighty price moves, and high volatility.

Forex and Overnight Trading

The forex market is the largest in the financial industry and is where global currencies are traded. Forex trading should be possible 24 hours every day five days per week. Therefore, the forex market doesn't technically have overnight trading since it is open constantly during the week. Numerous day traders decide to trade currencies hence.

The overlap of business hours between North America, Australia, Asia, and European markets make it workable for a trader to execute a forex trade through a broker-dealer whenever.

U.S. Stock Exchanges and Overnight Trading

Stocks in the U.S. trade on primary listing exchanges between 9:30 a.m. also, 4:00 p.m. ET. This is the point at which the exchange alongside other networks called electronic communication networks (ECNs) work with trading. Trades can in any case be led on the ECNs before the primary exchanges open and after the close.

ECN trading starts at 4:00 a.m and closes at 8:00 p.m. ET. These are called the extended hours or extended trading.

Mutual Funds and Overnight Trading

Mutual funds are governed by a forward net asset value (NAV) pricing rule that requires all orders placed after the market's close to receive the next day's closing NAV price. This rule assists with guaranteeing a smooth NAV accounting close toward the finish of every day for mutual funds.

Since NAVs are just calculated one time each day, a mutual fund investor might see a substantial difference in the closing price over time. For mutual fund investors, this can give a greater incentive to place a trade before the current day's market close.

Orders can be placed outside of normal market hours, yet the transactions aren't handled until a NAV value is accessible.

Bond Market Overnight Trading

Bonds additionally trade on exchanges over the course of the day. Be that as it may, they are just issued on certain exchanges, which limits their availability for trading.

Bonds trade through market makers and are listed on various exchanges, including bond exchanges at the New York Stock Exchange (NYSE) and Nasdaq. On the NYSE, bonds can be traded from 4:00 a.m. to 8:00 p.m. ET.

Illustration of Overnight Trading in a Stock

The accompanying chart shows an overnight trading session in Apple Inc. stock. The Nasdaq stock exchange, on which AAPL is listed, closes at 4:00 p.m. on high volume. After-hours trading initiates. Volume drops off, with the exception of a large spike at 5:01 p.m. The price trails a bit lower from the closing price, with the last transaction happening at 7:59 p.m.

The next day, the main trade happens at 4:00 a.m., at a higher price than the previous night's action. Volume is somewhat light in the pre-market and afterward heightens at the opening of the Nasdaq exchange at 9:30 a.m.

Apple has somewhat active overnight trading compared to many stocks. Not all stocks have active overnight trading as in this model.

Highlights

  • The forex market remains largely open all week since trading is worked with by banks and businesses around the globe. There is no formal overnight trading in the forex market on the grounds that the market is consistently open.
  • Bonds have extended trading hours, and overnight trading can occur in stocks between 4 a.m. also, 9:30 a.m. ET (when the exchanges open), and 4 p.m. (at the point when the exchanges close) and 8 p.m. ET.
  • Overnight trading will be trading that happens outside of the normal trading hours given by the primary exchange the asset is listed on.
  • Brokers of U.S. stocks that permit overnight trading might broaden their after-hours trading session as far as possible until the opening of the next trading day.