Overnight trading: What it is, how it works & risks
What is overnight trading?
Overnight trading allows you to trade over 10,000 U.S stocks and ETFs during the hours of 8:00pm EST and 3:50am EST Sunday to Friday. The first session begins on Sunday at 8:00pm EST and the last session ends on Friday at 3:50am EST.
EST is Eastern Standard Time in the Eastern United States and Canada.
How does overnight trading work?
- Trades executed between 8:00pm EST and 12:00am EST will carry a trade date of the following trade day.
- Only Day Limit orders are allowed in overnight trading. In this scenario, "DAY" implies the time during which the overnight market is open. Orders will only be active during overnight trading hours and will expire automatically at 3:50am EST if not executed.
- Overnight trading observes the New York Stock Exchange’s (NYSE) holiday schedule. An overnight trading session will not operate when the NYSE is closed the next day (e.g. if the NYSE is closed on a Friday, an overnight trading session will not operate that Thursday evening/Friday morning). Additionally, the overnight trading hours of operation are not adjusted on days the NYSE has an early close scheduled.
Things to remember before placing an overnight trade
- You cannot trade a stock the day before or the day after a corporate action.
- Orders marked to work outside regular trading hours will not be eligible for the overnight session.
- Trading in fractions is not permitted in overnight trading.
What are the risks of overnight trading?
There are unique risks associated with trading in securities at times that are outside of the exchange’s ordinary trading hours. Some risks associated with overnight trading are:
- Risk of lower liquidity: liquidity refers to investors’ ability to buy and sell securities. Generally, the more orders that are available in the market, the greater the liquidity. There may be lower liquidity in overnight trading compared to trading during regular market hours.
- Risk of higher volatility: volatility refers to the changes in price that securities undergo when trading. Generally, the higher the volatility of a security, the greater the variation in its price. There may be greater volatility in overnight trading compares to trading during regular market hours.
- Risk of changing prices: the prices of securities traded in overnight trading may not reflect the prices at either the end of regular market hours, or upon the opening of the market the next morning.
- Risk of unlinked markets: depending on the overnight trading system or the time of day, the prices displayed on a particular overnight trading system may not reflect the prices in other concurrently operating overnight trading systems dealing in the same securities.
- Risk of news announcements: normally, issuers make news announcements that may affect the price of their securities after regular market hours. Similarly, important financial information is frequently announced outside of regular market hours. In overnight trading, these announcements may occur during trading, and if combined with lower liquidity and a higher volatility, they may cause an exaggerated and unsustainable effect on the price of a security.
- Risk of wider bid-ask spreads: the bid-ask spread refers to the difference in price between what you can buy a security for (the "offer" or "ask") and what you can sell it for (the "bid"). Lower liquidity and higher volatility in overnight trading may result in bid-ask spreads that are wider than normal for a particular security.
- Trade date/Corporate Actions: the trade date for trades executed during the overnight trading session (8:00pm EST to 3:50am EST the following morning) is the date of the morning when the overnight session ends (even if the trade is executed before midnight). Therefore, you may not be eligible for corporate actions such as dividends. For example, if you purchase a stock on the day prior to the ex-dividend date, during regular hours, you will be entitled to receive the dividend. However, if the purchase is made during the overnight trading session, you will not be entitled to the dividend because the trade date for the overnight trade would be on the ex-dividend date.
The result of the above risks is that your order may be only partially executed, or not at all, or you may receive an inferior price in overnight trading than you would have received during regular market hours.
Important information
Please familiarise yourself with the risks of overnight trading and consider the appropriateness of the information, having regards to your objectives, financial situation or needs to determine whether overnight trading is appropriate for you.
