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While You Weren’t Sleeping: Trading the Overnight Session

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May 30, 2017
Owl: Nocturnal traders and the overnight session volume patterns
Getty Images

As the sun slides below the horizon and most of the world starts to wind down, a wide variety of nocturnal creatures begin to emerge from their daytime shelters and ready themselves for a night of activity. In the desert it’s the owl, the coyote, and the jackrabbit. In the jungle you’ll find the bat, the wolf, and the ring-tailed lemur starting their day. In financial markets, it’s the overnight trader.

Most people know that the stock market closes at 4 p.m. ET, and some are aware that you can trade in the after-hours session until 8 p.m. But beyond that, there’s a nearly round-the-clock world of futures, options, and currency products available to qualified account holders.

Where the Overnight Action Is

The E-mini S&P 500 Future (traded under the symbol /ES in the thinkorswim® platform from TD Ameritrade), trades on Globex, CME Group’s all-electronic trading platform, and is one of the products with the highest after-hours volume.

Because they’re based in Chicago, E-mini S&P 500 Futures trade on a schedule quoted in U.S. Central time (CT). For /ES, the week begins on Sunday at 5 p.m. CT (yes, the market is open while you’re watching weekend football), and continues until 4 p.m. CT Monday. However, there is a 15-minute break in trading from 3:15 p.m. – 3:30 p.m. CT. The schedule then repeats throughout the rest of the week until Friday at 4 p.m. CT, at which time trading is closed until the Sunday open.

Other products may have slight variations in their trading hours. They cover a wide variety of areas including, but not limited to, agriculture (corn, soybeans, and wheat), energy (oil, gasoline, and natural gas), metals (gold, silver, and platinum), currency futures, as well as options on futures. Spot forex does not trade on Globex, but across several domestic and international markets, and for that reason it is open 24 hours a day, without interruption, from 4 p.m. CT Sunday until 4 p.m. CT Friday.

Do Opportunities Fill the Night?

One of the drawbacks when trading stocks and options is that you can only do so for about one-third of the day, and if news breaks or events happen during the other two-thirds, there’s no way to act on it.  But with futures you can - and many traders do - as evidenced recently by the massive overnight trading volume surrounding the results of the U.S. election and the Brexit vote.

But even more important than initiating positions in the overnight sessions is the way in which you can use futures as a proxy to manage risk in your equities portfolio.

When potentially market-moving news breaks outside of normal trading hours, you will see it show up first in the futures, and this “early warning signal” can be used to manage your portfolio. For example, if you are holding a basket of stocks that tracks the S&P 500 (SPX), and news begins to unfold overnight, you could trade /ES as a way to hedge your portfolio against a down open.

If you’re heavy holding energy companies, the same thing could be done with /CL – Crude Oil Futures, or any other number of futures contracts that correlate with your holdings. In a sense, with futures trading 24/5, you have the tools that can help neutralize “overnight risk.”

Potential opportunities may present themselves overnight, and though they can be tied to all kinds of financial and geopolitical events, some of the main ones to watch for are interest rate announcements by the European Central Bank (ECB) and the Bank of Japan (BOJ), as well as economic reports coming out of China, most of which are scheduled ahead of time just like in the U.S.

You can also look for market-moving news out of Asia when the Tokyo Stock Exchange opens at 7 p.m. CT and in Europe when the London Stock Exchange opens at 2 a.m. CT.

Even if you're the type who needs eight hours of sleep each night, you’ll still be awake for a good portion of the overnight session, and though your primary focus may be on the regular session, it’s good to know that, if needed, you have the ability to take an active part in the markets no matter what time of day – or night – it is.

Overnight Session Overview

FIGURE 1: THE OVERNIGHT SESSION, 4PM-8:30AM.

This sample chart plots prices in 5-minute intervals, from the time markets close in the U.S. until they open the next day. The blue lines show the trading hours of overseas markets. Image source: the TD Ameritrade thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Day or Night, the Futures Market Awaits

TD Ameritrade offers a broad array of futures trading tools and resources. Trade over 50 futures products virtually 24 hours a day, six days a week.

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