The London Stock Exchange Group (LSEG) is considering 24 hour trading, according to a widely reported Financial Time story.

The move comes amid increased demand from retail investors for trading outside of standard office hours. Many investors have become accustomed to trading FX and cryptocurrencies at all hours. And some trading platforms offer 24-hour access to certain stocks (usually in the form of placing overnight limit orders).

The LSEG is not alone in considering 24-hour trading. Nasdaq has already announced its intention to provide 24/5 access, describing the decision as a natural part of the evolution of trading: “From the open-outcry trading pits of the past to today’s real-time, globally interconnected electronic markets, investors and industry participants have greatly benefited from the modernization of markets. That’s why Nasdaq will enable 24-hour trading on the Nasdaq Stock Market.”

Globally, the taste for round-the-clock trading is forcing exchanges to rethink their operations. For instance, the Johannesburg Stock Exchange is ‘monitoring global events’ to help inform a decision about whether to extend trading hours.

Market views

For many ordinary investors, 24-hour trading may feel like a natural extension of the convenience and flexibility of modern online trading platforms.

However, as the FT points out, professional traders and ordinary investors may have divergent ways of looking at the market. “While small investors, trading via brokers such as Robinhood, have been enthusiastic users of out-of-hours trading, professional fund managers are still generally wary, worried about additional costs and the regulatory risks involved.”

For brokers, even those accustomed to providing 24-hour access to FX and crypto markets, round-the-clock equity trading introduces new complexities. Without an effective strategy, these complexities could introduce risks and costs that outweigh the opportunities.

Losing concentration

As Warwick Business School researcher Martin Walker reminds us, “the main reason for restricting trading hours is fundamentally the same reason exchanges were invented in the first place, i.e. concentrating as many buyers and sellers together in the same place at the same time.”

As Walker reiterates, while the place is now virtual rather than a physical location, “concentration of buyers and sellers makes a market operate more smoothly and provides better price discovery.” If buyers and sellers are less coordinated, we can expect wider spreads and large price movements.

Trading platforms would need to update technologies, policies, and procedures to adapt to a 24/5 landscape.

Late night liquidity

In a world of 24-hour equity markets, retail brokers that offer access to stocks will need to ensure they have a liquidity solution that meets the new reality.

Unlike FX or crypto markets, where liquidity is more evenly distributed, equity markets depend, to a greater degree, on synchronised activity and concentration. Equity markets respond to day-to-day business activity, such as corporate disclosures and news events. And, for now at least, retail investors tend to favour domestic stocks (even if home bias is arguably overstated).

It may well be that case that, for retail investors, money never sleeps. But if market makers keep to office hours, liquidity will be thin. Brokers that want to effectively operate in this space will need diverse and deep sources of liquidity, as well as technology capable of finding the best prices efficiently, handling orders that may only be partially filled, and adjust trading strategies amid dramatic price swings.

Compliance challenges

24-hour equity trading also raises compliance issues. Again, technology is key. As detailed in Finalto’s ‘Future of Compliance’ guide, functions such as post trade monitoring, transaction reporting and ensuring best execution are non-negotiable, not merely from a reputational and client-service perspective, but also to meet stringent regulatory requirements.

For after-hours trading, efficient strategies, supported by world-class automation, could be the difference between success and lasting reputational damage.

A world of opportunity

The prospect of 24-hour equity markets creates complexities but also exciting opportunities for investors, brokers, and for the investment sector more broadly. Retail investors gain greater access and flexibility to trade across global geographies and time zones, aligning equity markets more closely with the nonstop nature of FX and crypto.

Brokers that successfully adapt may be at a significant competitive advantage. However, offering seamless and compliant 24-hour trading requires an investment in expertise, technology and operational effectiveness.

Your partner for growth in a changing world

 In a rapidly evolving market environment, Finalto can help offer the liquidity and support your business needs to navigate change. Finalto’s award-winning liquidity solution delivers customised pricing and tailored services to professional clients. We aggregate liquidity from both primary and secondary venues, giving clients access to deep, diversified liquidity pools across a truly global, multi-asset offering.

Leveraging our strong, direct relationships with a curated network of Tier 1 bank liquidity providers and established non-bank market makers, we deliver market-leading, bespoke pricing.

Finalto’s multi-asset solution helps brokers to differentiate themselves and gain a competitive edge and a highly competitive and regulated market.

Get in touch to learn more about how Finalto’s world-class liquidity, fintech and risk management can help your business accelerate growth in a rapidly changing environment.

All opinions, news, research, analysis, prices or other information is provided as general market commentary and not as investment advice and all potential results discussed are not guaranteed to be achieved. The information may have been derived from publicly available sources, company reports, personal research, or surveys. Past performance is not indicative of future performance. Trading carries risk of capital loss. Service available to professional clients only.