There are a lot of major changes that can shape how to trade stocks in future-from 24-hour business to AI and Tokenization.
In the last one year, major exchanges including NASDAQ, New York Stock Exchange, CBOE (in US) and London Stock Exchange have announced a plan to expand 24 -hour equity trading hours in all days. Cleanliness and disposal (DTCC) and consolidated tape (SIP) will also need to be upgraded.
Today we are going to see what the research says about how the trading works throughout the night. Data points can help us do the work of how to work in 24-hour trading.
Not too much data on extended-hour trading
There is a problem in understanding how extended-hour trading works, there is not much data on it.
To start, extended-hour trading is about 11% of the total daily volume. As the volume decreases in chart 1, most extended-hour trading occurs in hours before and after regular hours of trading. Trading (8 am to 4 pm) for only 0.2% of the total equity market volume.
Chart 1: 24-Volume in the day of 24-hour, and on and off-exchange ratio
We have already talked about what is really the best time to “finish the day”, based on the fact that some Asian markets open before midnight in the US Chart 1 shows that there is not only less liquidity after (very) hours, but many businesses are also done in off-exchange trading-although there are many businesses (although exchanges as well as exchanges as well as exchanges (4Ms from 8 PM).
Why do we care about extended-horses business?
Importantly, the rules of business are also different. There is no NBBO and no OPR (order protection rule). This means that “trade-thrro”, or is filled in worse prices compared to exchange prices, is allowed and there is no 605 reporting that investors spend how much business.
Market volatility trading bands (such as Luld and market-wide circuit breakers) are also not available for the safety of investors. In fact, SIP is also not open from 8 am to 4 am, making it impossible to report trades during those times.
Looking at the research done
Recently, many research papers Pass In view of overnight and extended-hour business by academics. Today, we focus on what those academics have received.
Educationists constantly suggested that overnight trading is used mainly by retail investors, and they pay much more business costs throughout the night. Several studies indicate that retail investors still need to help in guaranteeing low performance costs and good trade prices, especially when the exchange does not provide competitive quotes to protect the market.
1. Most of the night volume comes from retail investors in the Asian region
We know that earnings, and some economic data, are usually declared regularly out of market hours. This news makes some additional trading, which is most likely from professional investors. It corresponds to the 2003 paper by Barkle and Hendraots. It also explains the tall trade near Chart 1 in open and close, but the trading is not sleeping after most in the US.
A recent study suggests that trading during SIP closure (8 am to 4 am), sometimes also called trading overnight, is dominated by retail investors. The data source of the study suggests that 80% of the volume comes from the Asian-Pacific region, about half of which originates in Korea. The rest – only 20% – comes mainly from American retail investors.
Chart 2: Makeup of Trading Participants overnight
2. Market quality is quite poor when exchanges are not being quoted
We have shown in the past how the use of discounts to encourage competitive NBBO quotes helps to narrow proliferation during regular trading hours.
However, overnight trading operates fundamentally separately from the regular hourly trading. Currently, no exchange works overnight. Instead, the trading is off-actions (in the form of chart 1 show). With low exchange trading and low competition for live quotes, we see wide after hours.
Research of recent studies shows that stock:
- Business overnight every day: Traded only 393 shares every day during your sample period. For them:
- The quoted spread was about 40% more during the night.
- The depth was only 47% of regular hours.
- Night trade: Only 3,026 shares traded all during their sample period.
- About 144% more during the night.
- Interestingly, on average, depth for all stocks, its comparable during regular hours.
Chart 3A: depth and dissemination are worse overnight
With the widespread and depth spread overnight, most traders will expect trading costs to be higher. In fact, this is what was found in this study. Effective proliferation on retail orders was about 3 times the size of the people executed during regular hours, and the price effect was about 6 times larger.
Chart 3B: Trading cost is very high overnight
3. OPR and 605 deficiency can add to the execution cost overnight
Another paper from Hendrash and Barkle (2003) suggests that the cost of extended-hour trading (4 pm) is 4-5 times larger than regular hours. Above it is a comparison of the Walner, Eaton and Shakeelko (2025) paper, which found that night trading (8 pm) was 3-6 times.
Interestingly, the study conducted by Werner also found that most of the most cited value in most of the overnight execution is worse – and almost no orders with improvement in value.
Chart 4: overnight order “through business” exchange quotes
4. Liquidity provider captures maximum spread – add cost to retail orders
During the day, a combination of order protection rules (OPR), execution quality (605) reports and competition helps to protect retail investors. During the extended hours, no one applies.
Sometimes, retail customers are automatically converted to trading through their market orders to trade through a thin market, and to increase their performance costs, to limit orders.
A study by the University of Cincinnati saw that, between 2018 and 2022, this practice may actually have increased retail trade costs. The data executes the “cluster” close to the 5% range (Chart 4) during extended hours. Then, as soon as the practice stopped (6 pm) effective spreads reported that no longer cluster has been done below 5%.
The academics argued that it indicated that sophisticated traders adapted their algorithms to maximize the possession of this automated collaring.
Chart 5: Investor benefits refined to retail investors
Some studies show that short hours may improve market quality quality
Not all studies suggest that hours are better.
Another study saw European trading. This suggested that their “tall” trading day (usually 8.5 hours in the US compared to 6.5 hours) can actually damage market quality and add execution costs.
They use the time when the savings of the day of the US and Europe create a strong overlap of hours of savings changes. They show that the European markets have better dissemination and depth when the markets overlap. In short, authors argue that shortening the European Day (especially American hours) will better concentrate liquidity in European opening and improve market quality.
Investor protection, and rewarded lit. Quotes, is still important
Perhaps these studies show the best that is the value that provides the exchange and lit quotation market. Certainly, with low liquidity after hours, proliferation is likely to be widespread. But this data shows that at times trading when there is no OPR, NBBO or 605 requirements can also make some retail trade costs unnecessarily higher.
This, in turn, reflects the importance of competitive lit quotes. Although European studies also shows, market makers can also be a challenge to compete on a long deadline.
Economic Research Principal Xian Song at NASDAQ contributed to this article.
