Last Updated on 7 April, 2022 by Samuelsson
Trading stocks over the weekend can be a good opportunity for professional as well as part-time traders to brush up their skills while maximizing their returns.
Yes, traders can trade stocks over the weekend. While most stock exchanges operate on a 9am-5pm and five days a week format, trading on weekends is made possible through so-called Electronic Communication Networks (ECNs). These enable investors to trade during the pre and post market hours.
You could say that there are three ways of trading shares over weekends. The first option is to use the pre-market and after-market trading sessions to buy and sell shares outside the regular trading hours. The second is to use the global time difference to operate on regular hours in stocks of other countries. The last alternative is to trade shares in Middle Eastern stock exchanges that trade stocks between Saturday and Wednesday.
Let’s have a look at the different options!
Using Pre-Market and After-Market Trading to Trade Outside the normal Trading Hours
Every stock exchange has fixed opening hours and these are usually some mix of 9 am to 5 pm. For example, the New York Stock Exchange (NYSE) operates between 9:30 am and 4 pm. If traders want to trade shares before the market opens or after it closes down, they will have to do so during the pre-market or post-market sessions, through the Electronic Communication Networks (ECNs).
ECNs allow traders to trade stocks outside market hours. Initially, only institutional investors could afford to trade shares using ECN. However, with the computer revolution, more and more investors can now afford to buy and sell stocks using ECNs. Currently, mainstream service providers like Charles Schwab also provide after-market trading services.
How Do I Trade Outside Regular Trading Hours?
Today most brokers offer after-hours services for their clients. While some brokers only offer limited access, others only offer trading through slower computer networks resulting in slower execution speeds. Be sure to look this through carefully before trading outside the regular hours.
Every Exchange has defined hours for pre-market and after-market trading of stocks. Usually, post-market operating hours can be between 4 pm and 8 pm. Similarly, pre-market trading can be between 4 am and 9 am.
NASDAQ and New York Stock Exchange (NYSE) are two of the biggest stock exchanges in the US as well as the world. Their market operating times are depicted in the following table. All of the times are shown according to eastern time.
|After hours trading||4 pm to 8 pm||4 pm to 8 pm|
|Pre-market trading||7am to 9:30 am||4am to 9:30 am|
Most ECNs take only buy or sell orders from the customer. This can be problematic for investors that like to use custom orders, such as stop-loss order, for investing in shares. Furthermore, ECNs tend to have a lower volume of shares as compared to the actual exchange which may lead to that not all orders will go through. This reason for that is that in order for a transaction to take place, a seller’s bid to sell shares has to be met with a buyer’s demand to buy stocks. This does not always happen in low-volume ECN markets.
Benefits of Trading Outside Regular Trading Hours
There are two major advantages to trading outside regular trading hours.
Flexibility: The biggest benefit of off-hour-trading is the flexibility that it can provide to non-professional traders in the purchase/sale of shares. Part-time investors have a limitation where they cannot give adequate time to their investments because of office responsibilities. This might be due to the sheer amount of work or because the boss does not allow them any non-office activity during office hours. In such a situation, after-hour trading allows them to find it really convenient way to juggle office work with their investment goals.
New-information: Apart from the convenience, off-hour-trading of stocks also gives investors a chance to act on new information that comes their way. This information comes from two sources. The first is external information about the market that comes from one’s social network or the news. The second type of information comes as a result of individual analysis, which may make a trader want to immediately sell/buy shares.
Disadvantages of Trading Outside Regular Trading Hours
There are four major disadvantages to trading outside regular trading hours.
Execution Risk: The biggest disadvantage that off-hour-traders have to face is “execution risk”. Execution risk is used to describe the risk of an order not being processed within that day. This risk holds true for pre-market and after-market traders that operate on ECN markets. Buy/sell orders may not get executed because of the lack of volume in the ECN market.
High volatility: Apart from execution-risk, the low volume also leads to high volatility. This is because a lower number of buyers and sellers increases the influence of institutional investors and other big players. Therefore, the price of shares can see wide fluctuations.
Extra charges for trading: many CDCs charge extra for trades placed during pre-market and after-market trading of stocks. These extra charges can sometimes negate the benefit of trades with low margins. Even if investors are trading high margin shares, the additional costs definitely decrease one’s returns on investment.
Limited trading options: apart from levying extra charges on customers, CDCs also offer a lower number of options for trading stocks. Pre-market and after-market orders do not offer complicated orders like stop-loss orders. This can become a serious disadvantage in case the investor’s strategy for trading shares uses stop-loss as a central element.
Using Middle Eastern Stock Exchanges to Trade Shares Over the Weekend
Though most of the world operates on a 9-5 basis, they often do not start and end their weeks on Sundays. Some Middle Eastern countries operate on the Islamic calendar which sees Friday as the beginning to the week. Therefore, they operate from Saturday to Wednesday. A good example of a weekend market is the Dubai Financial Market (DFM). DFM operates from Sunday to Thursday. Such timings allow investors to invest on weekends.
In order to trade such stocks, you need a broker that has access to stocks worldwide. IB offers worldwide trading and is a trusted broker among traders and investors.
Using the Time Zone Differences to Trade Stocks Over the Weekend
After 5 pm, investors in the US will not be able to perform regular trading on American exchanges. However, exchanges all over the world are open because of the time difference. Investors can use a good time difference site such as World Time Zone to find the status of open markets all over the world. By owning portfolios all over the world, they can ensure virtually 24-hour trading of stocks on weekdays. Furthermore, they can also trade in markets on Saturdays in countries that are more than 12 hours behind.
Related reading: Do Futures Trade on Weekends?
Related reading: How Often Can You Trade Stocks?
Trading outside normal hours is becoming an ever more common feature on stock exchanges all over the world. Investors can trade shares on weekends by using three strategies. Apart from trading shares, investors can also trade shares in pre-market and after-market hours by using ECNs. Shares bought in pre-market and after-market hours have the advantage of incorporating new knowledge and giving part-time investors much-needed flexibility. However, off-hour trading of stocks comes with its own set of problems which can include execution risk and high volatility.
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