To investors,
The crypto market has been trading 24/7/365 since the first coins traded hands nearly 15 years ago. Anyone in the world with an internet connection can buy or sell assets, regardless of the time of day.
Weekdays? Market is open. Weekends? Market is open. Midnight? Market is open. Holidays? Market is open.
This type of always-on market is how assets should trade. It allows market participants maximum flexibility to express their views at all times. The US stock market hasn’t followed suit though.
Stocks still trade in the normal 9:30am to 4pm EST timeframe. While these hours of operation have worked for investors over the last few decades, there are new types of investors showing up who want better access to markets.
Lu Wang and Katherine Doherty wrote the following in Bloomberg over the weekend:
“Wall Street pros are feeling uneasy about retail investors again. Only this time it's not about the trades they're making — it’s about when they're making them.
The amateur-investing revolution that has swept US markets since the pandemic is helping fuel a boom in overnight stock trading. It’s playing out at the likes of Robinhood Markets Inc. and Interactive Brokers Group Inc., which have adopted ways to offer the buying and selling of American shares 24 hours a day, five days a week.
That has effectively eliminated the traditional eight-hour overnight break, and the move has proved so popular that others are taking note.”
According to Lu and Katherine, the benefits of trading outside the normal hours is obvious:
“It lets investors react to market-moving events whenever they occur. It also benefits retail traders who often don’t have the same opportunity as other players to transact during business hours (pre- and post-market volumes surged amid the influx of amateurs during the pandemic). Plus it serves international investors clamoring for a slice of US equity exceptionalism from distant time zones.”
And these benefits are leading to increased trading volumes for pre- and post-market trading hours.
So who are these people that want to trade outside normal hours?
The first example is a rise in algorithmic trading. Software doesn’t need time to eat or sleep. It doesn’t get sick. Computer code isn’t required to go to their child’s little league baseball game on Saturday. The code can execute 24/7/365, which means that money can be gained or lost at any time of day.
Another example is the young retail investor who has grown up with a phone in their hand. Persistent access to the internet created a desire to have persistent access to financial markets as well. These young people already have 24/7/365 access to the new financial system, so they want the same access for the old system.
This is proven when Lu and Katherine explained “after-hours trading accounts for as much as 25% of Robinhood’s total volumes.” Retail is at the gate.
Now before you roll your eyes, remember that many of the largest financial institutions are expanding their product offerings to court self-directed retail investors. Wall Street is beginning to realize how much money these individuals have, along with their willingness to invest in various ideas.
This brings me to where I think we are headed — the stock market will eventually trade 24/7/365. There are many nuances around things like clearing and settlement that need to be figured out, but persistent access to the market is coming.
This means that attractive investment opportunities are coming too. There will be points of illiquidity or mispricing that are introduced when market trading hours are expanded. The kinks will be worked out over time, but in the short-term those opportunities will be present.
Additionally, expanded hours of operations will lead to more trading volume, which most likely leads to higher prices across the stock market. This would be a welcomed tailwind by equity investors who are constantly looking for more catalysts to drive assets higher.
And lastly, 24/7/365 trading hours will be another building block for the automated future we are headed towards. Many are excited about artificial intelligence at the moment, but there is a larger trend at play. Assets are going to be digitized, they will be traded by algorithms, and settlement will be instantaneous.
I don’t know how long this evolution will take. The writing is on the wall though. Superior technology tends to triumph over people’s feelings. I am spending time thinking about where opportunity will exist in the new world so I am prepared.
You may want to spend a few hours doing the same.
Hope you all have a great start to your week. I’ll talk to everyone tomorrow.
-Anthony Pompliano
Alex Thorn is the Head of Firmwide Research at Galaxy Digital.
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Will The Stock Market Trade 24/7?