What Is An Overnight Trade?

Trades executed the night before or the morning of an exchange's open are referred to as overnight trades. Depending on the kind of exchange a trader wants to make, overnight trading hours can alter. There isn't overnight trading in every market. After-hours trading is a continuation of overnight trading. 

 

•    Trading that occurs overnight occurs outside of the principal exchange where the asset is listed regular trading hours.

 

•    Brokers who deal in American stocks and permit overnight trading may continue trading well past the start of the following trading day.

 

•    Due to the fact that trading is made possible by businesses and banks around the world, the forex market is largely open every day of the week. The currency market is constantly open, thus there is no official nighttime trading.

 

•    Bonds can be traded for longer, and stocks can be traded overnight between the hours of 4 a.m. and 9:30 a.m. ET (when the markets open) and 4 p.m. (when the markets close) and 8 p.m. ET.

 

Orders that are placed after regular market hours are referred to as overnight trading. There are numerous channels for trading through a range of exchanges all around the financial markets. Bonds and stocks are included in the mainstream markets. Crypto currencies and foreign exchange are examples of alternative marketplaces. 

 

Investors must take into account the overnight trading requirements of each market when placing trades during off-market hours. For instance, trading in some over-the-counter (OTC) goods is prohibited after hours. On the other hand, because the foreign currency (FX) market is open 24/7, barring weekends, it does not close throughout the week. As a result, there is no actual nighttime trading.

 

Liquidity is frequently lower outside of regular market hours, which for U.S. stock exchanges are typically 9:30 a.m. to 4:00 p.m. ET. As a result, there will be fewer traders, wider bid-ask spreads, and possibly erratic price movements. 

 

Global currencies are traded on the forex market, which is the biggest in the financial sector. Five days a week, twenty-four hours a day, forex trading is possible. Since the FX market is open every hour of the week, theoretically there is no overnight trading. This is why a lot of day traders prefer to trade currencies. 

 

A trader can execute a forex trade through a broker-dealer at any time due to the overlap of the business hours of the markets in North America, Australia, Asia, and Europe. American Stock Exchanges and After-Hour Trading American stocks are traded on key listing exchanges from 9:30 am to 4:00 pm ET. 

 

When this occurs, trade is facilitated by the exchange and other networks referred to as electronic communication networks (ECNs). Prior to the opening of the principal exchanges and following their close, trades can still be executed on the ECNs.

 

Trading on the ECN takes place from 4:00 am to 8:00 pm ET. These are referred to as extended trade hours.

 

A forward net asset value (NAV) pricing rule that applies to mutual funds mandates that all orders placed after the market close be filled at the closing NAV price of the following day. This rule aids in ensuring a smooth NAV accounting close for mutual funds at the end of each day.

 

A mutual fund investor may see a significant fluctuation in the closing price from one day to the next because NAVs are only calculated once every day. This may provide mutual fund investors more motivation to make a trade before the market closes on the current day.

 

Although orders can be submitted outside of regular market hours, transactions aren't actually carried out until a NAV value is available.

 

Bonds are also traded all day long on exchanges. However, their availability for trading is constrained because they are only issued on a select few exchanges. Bond exchanges at the New York Stock Exchange (NYSE) and Nasdaq are just two of the many exchanges where bonds are listed for trading through market makers. Bonds can be traded on the NYSE from 4:00 AM to 8:00 PM ET.

 

The overnight trading session for Apple Inc. shares is depicted in the following chart. The high volume Nasdaq stock market, where Apple Inc. is listed, shuts at 4:00 p.m. The start of after-hours trading. Except for a significant increase around 5:01 p.m., volume decreases. The last transaction occurred at 7:59 p.m., leaving the price a little lower than the closing price. 

 

The initial transaction takes place at a greater price than the previous night's action around 4:00 a.m. the following day. Pre-market volume is rather low, but it quickly picks up when the Nasdaq exchange opens at 9:30 a.m.

 

Compared to many stocks, Apple has a relatively busy overnight trading market. Not all equities engage in overnight trading as actively as in this illustration.