What is 'Overnight Trading'

Overnight trading refers to trades that are placed after an exchange’s close and before its open. Overnight trading hours can vary based on the type of exchange in which an investor seeks to transact.

BREAKING DOWN 'Overnight Trading'

Overnight trading encompasses a broad range of orders that are placed outside of standard market hours. Across the financial markets there are various avenues for trading through a variety of exchanges. The mainstream markets include stocks and bonds. Alternative markets may include foreign exchange trading and cryptocurrencies. Each market has standards for overnight trading that must be considered by investors when placing trades during off-market hours.

Foreign Exchange

The foreign exchange (forex) market is the largest in the financial industry and includes the trading of global currencies. Foreign exchange trading can be done 24 hours a day five days a week because of the multiple listing of currencies on global market exchanges. Therefore, foreign exchange markets will provide one exception to overnight trading constraints. Many day traders choose to trade foreign exchange currencies for this reason. The overlap of trading hours between exchanges in North America, Australia, Asia and European markets makes it possible for a trader to execute a foreign exchange trade through a broker-dealer at any time.

Batch Trading

Batch trading is an important trading mechanism that helps to ease the burden of an overabundance of trades placed in the equity markets overnight. Batch trading is used once per day at a market’s open. Batch trading is integrated into the basic concept of bid/ask execution. However, in the pre-market, trading prices are static which requires a market maker to execute a large batch of trades at the market’s open rather than dealing with the standard price fluctuations that occur throughout the trading day.

Forward NAV

Mutual funds are governed by a forward net asset value (NAV) pricing rule that requires all orders placed after the market’s close to receive the next day’s closing NAV price. This rule helps to ensure a smooth NAV accounting close at the end of each day for mutual funds. Since NAVs are only calculated once per day, a mutual fund investor may see a substantial difference in the closing price from one day to the next. For mutual fund investors, this can provide greater incentive to place a trade before the current day’s market close.

Bond Markets

Bonds in the secondary market also trade on exchanges throughout the day. Bonds are only issued on certain exchanges which limits their availability for 24 hour trading similar to equities. Also similar to equities secondary market bonds trade through maker makers. Bonds are listed on a variety of exchanges including bond exchanges at the NYSE and Nasdaq. Bond trading is overseen by the Securities Industry and Financial Markets Association (SIFMA) which also regulates the hours of trading. Bond market exchanges have expanded hours during regular business days. On the NYSE bonds can be traded from 4:00 a.m. EST to 8:00 p.m. EST.

  1. Foreign Exchange

    Foreign exchange is the conversion of one currency into another ...
  2. Overnight Position

    Overnight positions are trading positions that are not closed ...
  3. Extended Trading

    Extended trading is trading conducted on electronic exchanges ...
  4. Overnight Return

    One of the two components of the total daily return generated ...
  5. Equity Market

    An equity market is a market in which shares are issued and traded, ...
  6. Foreign Exchange Market

    The foreign exchange market is the forum in which traders can ...
Related Articles
  1. Investing

    Who Owns The Stock Exchanges?

    As M&A heats up among the exchanges, here's how the market currently looks.
  2. Investing

    How Exchange Risk Affects Foreign Bonds

    Investors include foreign bonds in their portfolios to take advantage of higher interest rates or yields, and to diversify their holdings. However, the higher return expected from investing in ...
  3. Investing

    Pros & Cons of Bond Funds vs. Bond ETFs

    Understanding the pros and cons of bond funds and bond ETFs will help you choose the instrument that is best for building your diversified bond portfolio.
  4. Investing

    Corporate Bond Basics: Learn to Invest

    Understand the basics of corporate bonds to increase your chances of positive returns.
  5. Investing

    Bond Funds Boost Income, Reduce Risk

    Bond funds can provide stable returns for those who depend on their investment income.
  6. Investing

    The Basics Of Bonds

    Bonds play an important part in your portfolio as you age; learning about them makes good financial sense.
  7. Trading

    The Two-Hour-A-Day Trading Plan

    A lot of stock activity takes place at the beginning and end of the trading day. Find out how you can use this to benefit your investing strategy.
  8. Investing

    The Basics Of Investing In Foreign Government Bonds

    Individuals contemplating the purchase of government bonds need to understand the risks of bond investing.
  1. What is the difference between the bond market and the stock market?

    The bond market is where investors go to trade debt securities, while the stock market is where investors trade equity securities ... Read Answer >>
  2. How does the foreign exchange market trade 24 hours a day?

    Because foreign currencies are in high demand, the forex market is open 24 hours a day, and trading is not done at one central ... Read Answer >>
  3. Why are most bonds traded on the secondary market "over the counter"?

    Unlike stocks, most bonds are traded over the counter (OTC) in secondary market rather than through exchanges due to their ... Read Answer >>
Hot Definitions
  1. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  2. Inflation

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  3. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  4. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  5. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  6. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
Trading Center