A Primer on Overnight Trading featuring James St. Clair, President, Brokerage Services

In this new video from ViewTrade, President of Brokerage Services James St. Clair walks us through the history of the overnight trading session, how it compares and contrasts with trading during regular hours and the challenges and opportunities this strategy presents for industry firms.

Watch the video below and read this blog for a recap. Contact a member of our team for more:

History, Context and Statistics

Overnight trading has been around for several years, enabling traders to transact outside of typical trading hours, including standard pre-market and after-hours trading. Several market makers originally committed capital to this initiative, but then pulled back from offering this extended session due to lack of activity. Many maintained ETF trading capabilities, however, due to high market interest in this asset class specifically.

ViewTrade first launched its overnight trading session two years ago, in collaboration with an ATS that previously gained recognition for the success of its overnight sessions and which has seen a rapid rise in volumes in recent years. Several of ViewTrade’s FFI clients went through an adjustment period with this new session due to technology constraints, but interest today remains high and growth has been impressive. With today’s geopolitical events and hyperactivity in newsworthy stocks, clients are demanding access to trading when it’s most convenient for them – which, for clients in the APAC and MENA regions, is that 8pm-4am ET time frame that sits between pre-market and after-hours.

On any given night, about 2,000 active names are traded and notional volumes range from $400 to $600 million. Activity in the top 10 securities comprises about 40% of the notional volume traded, and the top 50 securities account for 80% of total notional value traded. Most trades executed during the overnight session are the same as those traded during daytime hours, with the exception of ETFs, which account for 30% of the top 50 names traded.

Comparison with Regular Trading Hours

The biggest misconception is that there is a lack of liquidity in the overnight session, and that the spreads widen out overnight. This was the case years ago, but today, the liquidity is rather deep and the spreads are no wider than they are in the pre-and post-market sessions. It’s important to note that all trades in an overnight session are posted for the trade date of the following day, even if traded prior to midnight. Another difference from daytime trading: in order to avoid issues with securities undergoing corporate actions such as splits, most securities with such activity on the calendar will not trade in the overnight session until these actions are complete, leaving these securities ready to trade the following day.

When to Engage in Overnight Trading

With today’s volatile markets, any trader interested in being active, taking advantage of market volatility and reacting to global events that are happening across the markets outside of regular market hours is a prime candidate for the overnight session. It’s ideal for reacting to news and taking advantage of changes that take place after market close.

Challenges and Opportunities

For ViewTrade, the biggest challenge has been educating clients on the dynamics of the overnight session, how it works and how it can be a reliable tool for access to the markets. With the success of active alternative trading systems , there are now multiple executing venues entering the space, which will increase liquidity and tighten spreads. Overnight trading is still in its infancy, but with innovative technological advances occurring in this space, a true 24-hour market will soon be as commonplace as the pre- and post-market has become.

For more information on how ViewTrade can help your firm power its overnight trading capabilities, get in touch with our expert team