Why 24 Hour Trading Isn’t Happening

Posted on November 30, 2011 by

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A few years ago it seemed like we were headed this direction…

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A recent story on marketwatch.com talks about why a 24 hour market hasn’t taken off, even though it seemed inevitable a few years ago:

The idea of a 24-hour market started as an exciting realm of possibility in the 1990s, when stock exchanges enabled trading outside of the 9:30 a.m.-4:00 p.m. Eastern session, as part of efforts to fend off competition from other trading venues, such as electronic communication networks. But it never took off, even as multiple boom-and-bust cycles came and went in the following years.

The article focuses on the lack of traders and market makers (thus liquidity) after hours.  I agree this is part of the reason.  But another perhaps more important reason is that people are just set in their ways.

Folks who are experienced in the market like the rhythm we have:  The Asian markets open and close, we note their progress as predictors for Europe.  Then the European markets open and close as we march closer to the US open.  Traders on the East coast wake up at 4AM to track this activity as well as the the news in Europe. The S&P 500 and DOW Futures begin trading and serve as bellwethers for the NYSE open. Retail traders put orders in with their brokers. 9:30AM ET is sometimes spectacular as pent up energy (represented as trading orders) explodes.  We enter the trading day on the major exchanges with auctions that set the price for every traded equity.

After the fireworks of the open, prices and volume usually settle down and we enter a phase where the market follows news throughout the day.  Finally as we approach the close the day traders and HFT houses cause a ramp up in volume and an occasional sharp turn.

The SEC and most companies wait until after market close to make big announcements: Earnings reports, CEO health problems and so on.  The pause in trading prevents monster moves in the market and it gives people some time to mull over the real meaning of the news.  In fact for really big news they’ll make the announcement on Friday so we have all weekend to calm down.

Disclosure: Tucker Balch likes the 9:30 to 4PM market!

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