24/7 Trading Is Coming. But Is It a Good Thing?

Key Points

• The extended trading hour stars are starting to align.

• Lack of liquidity can make out-of-hours trading more expensive and risky.

• Longer trading hours may be more convenient and allow investors to react to breaking news.

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Stock markets have come a long way from the stereotypical trading floors we may know from the movies and TV. Most trading is electronic these days. And, while the New York Stock Exchange and Nasdaq still ring an opening and closing bell, it's largely symbolic. After-hours trading in various forms is increasingly common and could soon become the norm.

Several established brokers already offer after-hours trading. Key exchanges and infrastructure providers are looking for regulatory approval to extend their hours of operation. And Sept. 29 will see the launch of the new, SEC-approved, 24X National Exchange. This will initially trade U.S. equities from 4 a.m. to 8 p.m ET every weekday.

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But just because you can trade at almost all hours, should you?

Image source: Getty Images.

Is 24/7 trading a good thing?

The convenience of being able to manage your portfolio at an hour that suits you is one of the biggest benefits of extended trading. Regular market hours of 9:30 a.m to 4 p.m. ET may not suit many retail investors who can't easily trade during office hours. That's even more so for international investors who own U.S. stocks and live in a different time zone.

Depending on what type of investor you are, there's also an appeal to being able to react to events as they unfold -- we live in a 24-hour news cycle and the current after-hours and pre-market trading sessions will only take you so far.

Perhaps a company just issued a disappointing earnings release or announced a change in leadership that you think will impact its performance. Maybe there's other breaking news such as trade deals, overseas developments, or economic data that might significantly impact a particular business. Extended trading hours give you a chance to react as things happen.

Drawbacks of 24/7 trading

On the other hand, trading outside the regular hours can carry more risk and prove costly. People are more likely to make emotional investment decisions when they can trade at any time they want, whether that's panic selling or impulse buying. This can damage your portfolio in the long run.

Another big issue is that there isn't as much liquidity. If you're trading outside of regular hours, you may not be able to execute the trades you want. And if you can, you may find there's a wide bid-ask spread. With fewer people trading, the gap can widen between what investors are willing to pay and the price the seller wants.

In terms of prices, thinner order books can translate to increased volatility. Price discovery is also harder. The securities information processors (SIPs) that collect and distribute real-time data don't yet operate out of hours, so you may find two different systems give different prices.

Finally, if you plan to trade out of hours today, many brokerages have restrictions on which equities you can trade and what types of orders you can place. For example, Charles Schwab (NYSE: SCHW), one of the leaders in extended trading, will only take limit orders during non-traditional hours. Similarly, Robinhood (NASDAQ: HOOD) doesn't offer fractional trading on all its securities and only supports certain order types in extended or overnight trading.

Round-the-clock trading is coming

A mix of forces is driving us closer to 24-hour trading. Those include technological advances, shifts in regulatory attitudes, globalization, and investor demand. Most recently, the SEC and Commodity Futures Tradition Commission said extended trading is a joint priority. Even so, we're more likely to see 22-hour or 23-hour trading windows on weekdays than a full shift to 24/7 markets.

Here are some of the drivers toward extended trading hours:

• Tokenized assets are gaining traction. These are essentially a way to issue a token that represents ownership of anything from real estate to equities to online art. They originated in the cryptocurrency world, but are starting to have an impact on all asset classes. One of the attractions of the blockchain is that it doesn't have set trading hours.
• Nasdaq hopes to launch 24/5 trading by the second half of 2026. It says it is working with regulators and infrastructure providers to make this possible. The exchange is also awaiting SEC approval for tokenized stock trading.
• The NYSE wants to offer 22/5 trading on NYSE Arca, its electronic trading system. If regulators approve, it wants to extend its hours from 1:30 a.m. to 11:30 p.m. ET every weekday. The idea is to launch at the end of next year.
• Back-end infrastructure is shifting to accommodate longer hours. The SIP operating committees have asked the SEC to approve plans for 23/5 operations. Clearing houses are doing the same. This would give investors the information they need to trade effectively, no matter the time.

Not quite 24/7, but nearly

We're on the cusp of a seismic shift in how markets work. Exchanges, SIPs, clearing houses, and brokerages are all laying the groundwork for systemic change that will make after-hours trading more normal.

As an investor, it's worth thinking about how this might impact your activities. That includes making a plan to handle breaking news and avoid panic decisions, understanding what brokerage automation tools might help, and being clear on how longer trading windows might fit with your goals and strategies.

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Charles Schwab is an advertising partner of Motley Fool Money. Emma Newbery has no position in any of the stocks mentioned. The Motley Fool recommends Charles Schwab and recommends the following options: short September 2025 $92.50 calls on Charles Schwab. The Motley Fool has a disclosure policy.