Money never sleeps on Wall Street. Or at least that’s what Michael Douglas’s character Gordon Gekko tells us in the Hollywood version of Wall Street.
And now the amateur traders on all the other streets will get the opportunity for their own stock-market-induced insomnia: Robinhood has introduced 24-hour trading in 43 of the most active US exchange-traded funds and individual companies such as Tesla, Amazon and Apple. Orders now can be placed and executed anytime from 8 p.m. New York time on Sunday to 8 p.m. on Friday. Robinhood joins Interactive Brokers Group, which recently introduced overnight trading of 79 stocks and ETFs, and other brokerages offering round-the-clock trading only of popular ETFs.
Quick, to the day-trader message boards on Reddit for some reaction from the target audience! “Why would anyone want this?” asks one poster. “Because gamblers are gonna gamble,” responds another. “Nice! I can save gas from driving to the casino,” adds a third. Or as Vlad Tenev, the head of Robinhood, put it on an earnings call: “It allows our customers to better manage their risk and take advantage of opportunities, no matter what time of day they arise.”
Given Robinhood’s influence in ushering in the chaotic but here-to-stay era of commission-free trading, other brokerages will likely keep an eye on how this night-owl trading goes. Perhaps it was inevitable that the stock market would go the way of Denny’s and offer round-the-clock service, especially in the age of the app economy, when everything from pizza delivery to cryptocurrency trading and sports betting is available 24/7 on smartphones. Whether it’s good for one’s mental, physical or financial health to do any of these things is another story.
Yet there’s also an argument to be made that it’s long overdue for stock trading to escape the tyranny of the Eastern time zone, especially since the bulk of the most important US companies are now based on the West Coast. Some $16 trillion worth of S&P 500 companies—almost half of the index’s market value—are domiciled in the Pacific time zone, according to data compiled by Bloomberg. For investors there, the regular stock market session ends at 1 p.m., and even the after-hours trading session is over by 5 p.m.
Add it all up, and there are signs that demand exists for an open-all-night stock market. The boom in day trading during the Covid-19 pandemic triggered a surge in US retail trading in the after-hours session that runs from 4 p.m. to 8 p.m. New York time, according to researchers at Australia’s Monash University and the UK’s University of Warwick. Yet, they wrote in a 2021 paper, other research suggests profits from many sophisticated trading strategies stem from after-hours activity. That’s not actually good news for those planning to log in on their phones after a family dinner. Rather, the researchers write, it could be “that some market participants are making money at the expense of other (uninformed) traders who are enticed to these (now more accessible) trading venues despite the obvious disadvantages.”
What are those obvious disadvantages? Well, just like the service and clientele at your local all-night diner might be a bit thinner and rougher at, say, 2 a.m. compared with 9 a.m., the stock market’s a little different at night. Lower liquidity in the current after-hours sessions—meaning fewer buyers and sellers to take the other side of trades—can often lead to abrupt, volatile changes in stocks and wider spreads between the bid prices to buy and the ask prices to sell. More volatility means an investor could end up buying or selling at a temporarily distorted price; wider spreads effectively mean trading costs more.
Orders from Robinhood users during the new overnight hours are sent to an off-exchange alternative-trading system called Blue Ocean ATS (Boats) for execution. Their counterparties include heavyweight professional trading firms such as Virtu Financial and Jane Street, and their orders mix with trades from customers of South Korea’s Samsung Securities and Hong Kong’s Futu brokerages. Interactive Brokers plans to start sending orders there soon, too. Boats only offers limit orders, where traders set a maximum price at which they’re willing to buy or a minimum price to sell. During times of wild price swings, that should help Robinhood investors avoid losses that might arise from ordinary “market orders” to buy or sell at whatever the prevailing price is.
Other venues could be on the way to the all-night party. Billionaire Steve Cohen’s Point72 Ventures has backed a startup called 24 Exchange, which has ambitions to go even further than Blue Ocean’s five-day service and operate a securities exchange 24 hours a day, 365 days a year. “It’s very hard to predict what’s going to happen with 24/5 trading, since this is fundamentally new in the market,” Robinhood’s Tenev said on the earnings call when asked about what sort of engagement he expects from customers. “What we’d like to see is sort of good liquidity available for these symbols, and liquidity to be a little bit smoother, and not as much sort of happening on the open and the close” of regular trading hours, from 9:30 a.m. to 4 p.m. Eastern time.
Still, those are the times when mutual funds, hedge funds and other big-money investors trade because liquidity is the highest, which is something insomniacs will need to keep in mind before firing up their trading apps. “You’re not going to get a head trader to wake up at 2 in the morning to go buy stock unless it’s a real emergency,” says Larry Tabb, the head of market-structure research at Bloomberg Intelligence. “And it costs a lot more money to get in and get out when fewer people are trading.”Read next: Crypto Winter 2022 Cost Bitcoin Holders More Than Cash
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