Prologue

Extended trading, also known as electronic trading hours, refers to the buying and selling of securities through electronic networks outside the standard trading hours of a stock exchange. Regular trading hours for listed stocks, as defined by the Securities and Exchange Commission (SEC), are from 9:30 a.m. to 4 p.m. eastern time (US). The extended trading can occur either before the official market opens, known as pre-market trading, or after it closes, referred to as after-hours trading. This extended-hours trading does not change exchanges’ official closing prices or determine the next day’s opening prices.

The latest study conducted by one of the leading US based brokerage firms found that more than 90% of its retail customers were interested in participating in 24-hour trading. Recently, Interactive Brokers platform (IBKR) reported a 543% Year-to-date increase in Overnight Trading. This paper focuses on driving business growth by offering extended hour trading service and building differentiated value propositions to attract retail brokerage clients.

Market infrastructure firms increasing support for extended trading

Electronic Communication Networks (ECNs) are type of alternative trading system (ATS) that allows electronic trading outside the traditional exchange trading hours. Some of the popular ECN includes NYSE Arca, Instinet and SelectNet. According to NYSE, the Arca exchange one of the top venues and has traded about $21.8bn per day in corporate stocks and $27.7bn a day in ETFs (year-to-date).

The New York Stock Exchange have announced its plan to extend trading hours to 22 hours each day. This updated schedule for the NYSE Arca electronic exchange would see trading commence at 1:30 a.m. and conclude at 11:30 p.m. ET on weekdays. The NYSE is preparing to submit revised rules for the extended trading hours to the U.S. Securities and Exchange Commission. This move follows the industry trend of increased trading availability on public markets.

Recently, the SEC provided its approval to 24X for first 24 hours exchange for equities and its set to launch in 2025. The 24X targets to operate a fully automated electronic trading platform for the trading of listed NMS stocks 23 hours per day, 7 days per week, including certain holidays. This will have significant effects on the region’s market structure, as well as the potential for other securities exchanges to follow suit in backdrop of the SEC’s decision.

Benefits and risks of extended trading

The extended trading capability allows investors to swiftly respond to news and events that happen outside regular market times, giving them the opportunity to anticipate market movements at the opening bell. When a noteworthy event takes place before the market opens or after it closes, it often leads to a notable spike in trading volume during extended hours.

The key risks include limited liquidity and less trading activity that often translates to wider spreads between the bid and ask prices, and it can adversely affect the market price for execution. During the extended hours trading, the stock prices are more volatile as investors immediately reacts to corporate events such as earnings and key announcements. Traditionally, extended trading participants were large institutional investors with access to more capital and resources. Hence, during after hours, individual investors may be at a disadvantage as they compete against large institutional investors with substantial amounts of capital to invest in stocks.

Rise of 24x7 trading within Retail brokerage

With online brokerages and mobile trading apps such as E*TRADE, Robinhood, Interactive Broker, Firstrade, and Webull providing 24/7 access to trading platforms to retail clients is leading to an explosion in after-hours and overnight trading i.e., the retail traders can now execute trades from virtually anywhere, even during off-market hours. These platforms come with features like real-time data feeds, algorithmic trading options, and the ability to buy fractional shares, giving retail investors the opportunity to engage in markets that was earlier dominated by institutional players. These brokerage firms have different rules regarding customer participation in extended-hours trading. For example, these firms may set specific times for trading, limit it to certain venues, or restrict trading to few products.

One of the recent announcements include Charles Schwab announcing the expansion of its 24-Hour trading capabilities to include the stocks in the S&P 500®, Nasdaq-100® and Exchange-Traded Funds. Schwab will begin piloting expanded overnight access with a small group of clients and gradually expand to full client access in 2025. Schwab’ extended hour trading capabilities is powered by the Blue Ocean ATS platform (BOATS) operated by Blue Ocean Technologies.

Leverage AI to differentiate extended trading value proposition

Firm must leverage AI to build new and upgrade capabilities enabling retail investors to make well informed investment decision and mitigate the common risk involved in extended hours trading. The key AI capabilities include predictive analytics and machine learning to analyse historical market and stock data, generate investment ideas, build portfolios, and identify buy and sell stocks opportunities.

A select possibilities of AI tools discussed below.

• Ability to process the news and corporate announcements from multiple sources (traditional and social), perform sentiment & trend analysis. Followed by generating personalised actionable insights to assist investors in making well-judged trading decisions.
• Ability to predict stock prices factoring in multiple parameters such as technical indicators, historic trends, and key fundamentals. Investors gets equipped to manage the price volatility and wider spreads between the bid and ask prices.
• Ability to generate trade ideas by identifying buying and selling opportunities and notify the investors. Powerful stock screener will assist investors in capitalising on trading opportunities.
• Ability to simulate different market scenarios and perform what-if analysis before placing the orders. Investors will be aware of implications beforehand and avoid unwanted trading activity.
• Digital assistant to help investors in doing market research by leveraging firms research repository. This tool be can further expanded to manage client other queries and concerns by sharing personalised educational contents including articles, videos, webcasts, podcasts.

Firms must embrace Agentic AI powered capabilities to build a fully digital brokerage platform that can provide support to retail clients around the clock. The Agentic AI specifically excels at efficiently executing multi-step processes, streamlining complex trading workflows and can make sophisticated decisions based on context, much like human decision-makers.

Conclusion

As the overnight trading gains momentum, the firm must gear to offer AI powered differentiating features and elevate customer experience to stay ahead of competition. Firms must look forward to seamlessly integrating the niche capabilities provided by the fintech players offering AI tools and reduce the time to market. As an outcome, firms will deliver highly personalised services to clients and witness increase in customer experience to drive business growth.

References:

• https://corporatefinanceinstitute.com/resources/equities/extended-trading/
• https://corporatefinanceinstitute.com/resources/equities/alternative-trading-system-ats/
• https://www.finra.org/investors/insights/extended-hours-trading
• https://www.ft.com/content/59dc109d-d385-412a-bcc6-b671db9ce680
• https://www.tradersmagazine.com/flashback/flash-friday-overnight-trading-gains-momentum/
• https://www.tradersmagazine.com/am/outlook-2025-steve-sanders-interactive-brokers/
• https://www.marketsmedia.com/peak6-investments-plans-bruce-ats-for-after-hours-trading/
• https://www.investmentnews.com/equities/will-24-hour-trading-keep-financial-advisors-up-all-night/258353
• https://www.schwab.com/public/schwab/nn/qq/about_extended_hours_trading.htm
• https://www.reuters.com/business/finance/us-broker-schwab-roll-out-broader-overnight-trading-platform-2024-10-30/
• https://www.bloomberg.com/news/articles/2024-11-28/first-around-the-clock-us-stock-exchange-wins-sec-approval
• https://us.etrade.com/l/f/agreement-library/extended-hours-agreement
• https://www.geeksforgeeks.org/ai-tools-for-stock-trading/
• https://www.bankrate.com/investing/24-hour-stock-trading/