Why are markets moving to 24-hour trading? What challenges lie ahead?

Key Takeaways

• Globalization, technology upgrades, and market demand are driving the push for longer stock market trading hours.
• 24-hour markets come with multiple advantages; they also present challenges that traders need to mitigate.
• Tokenization offers a potential solution to 24-hour trading challenges.

The concept of 24/7 or 24/5 trading is no longer a theoretical debate — it’s inevitable.

Nasdaq President Tal Cohen announced in March 2024 that discussions with US regulators are underway, and the exchange is likely to launch 24-hour, five-day-a-week trading in the second half of 2026. If implemented, this move could prompt other exchanges to follow suit.

But critical questions remain. Why are the markets pushing for round-the-clock trading? What challenges lie ahead, and what lessons can stock markets learn from the crypto markets?

Why are stock markets pushing for extended trading hours?

Factors such as globalization, technology upgrades, and market demand are driving the push for longer trading hours. Noting that there’s a high demand for US stocks and investors worldwide want to trade during their own waking hours, Giang Bui, Nasdaq’s head of US Equities and Exchange-Traded Products, said, as quoted by CoinDesk, “We definitely see that this is where the markets are moving.”

He also pointed out that the rise of crypto and decentralized finance (DeFi) has raised expectations for round-the-clock market access. In fact, “there’s a number of US brokers that already are offering overnight trading because their customers are used to trading crypto in those hours,” he added.

The 24-hour markets come with multiple advantages. These include:

• React instantly to global news – Continuous market operation allows traders to capitalize on or mitigate risks from news and events the moment they happen, without waiting for the next trading session.
• Enhanced price discovery and reduced gaps – Extended trading hours contribute to more accurate price reflection and minimize the price jumps that can occur between trading sessions.
• Mitigated opening and closing volatility – Round-the-clock trading helps to smooth out extreme price swings that are often associated with market openings and closings.
• Trade on your own time – Retail traders and professionals with full-time commitments gain the flexibility to trade at their convenience, fitting market participation around their personal schedules.

What challenges are stock markets likely to face and how to mitigate them?

A MarketMedia article points out that the shift towards 24-hour trading isn’t just about technology — it requires rethinking market structures and trading behavior.

Managing risk will remain a big challenge. Dave Olsen, President and Chief Investment Officer of Jump Trading Group, says risk won’t disappear just because markets don’t close. “You still have exposure, whether you see it on the screen or not.”

Other challenges include:

• Liquidity constraints after hours – The continuous nature of 24-hour markets could face challenges due to traditional banking and collateral systems operating on fixed schedules, potentially limiting fund availability outside standard business hours.
• Increased volatility from instant reactions – With traders globally reacting to news instantaneously, stocks directly impacted by such events may experience heightened and less predictable volatility.
• Unavoidable risk of panic-driven trading on earnings – Companies often time earnings releases to avoid immediate panic reactions during market hours, a safeguard continuous 24-hour trading could undermine.
• Higher operational costs for exchanges – Extending trading hours will likely lead to increased costs for exchanges, necessitating the hiring of more personnel across trading, brokerage, compliance, and exchange operations to ensure smooth functioning.
• Settlement complexities with existing cycles – The current T+1 settlement cycle in US stock markets, where trades take a day to finalize, presents a challenge for 24-hour trading, potentially adding complexity to the settlement process.
• Challenges with system maintenance and upgrades – Maintaining and upgrading the systems of exchanges and clearinghouses becomes more difficult with continuous 24-hour operations, as opportunities for necessary downtime without disrupting trading become limited.

To address these issues, firms need to find new ways to manage risk, ensure liquidity, and maintain smooth operations. Collaboration with regulators is the key to ensuring both innovation and stability.

Importantly, the experiences of cryptocurrency markets can provide traditional stock markets and firms with valuable learning opportunities, as they have already operated around the clock and addressed associated challenges. Examining their approaches to weekend staffing, efficient capital deployment, and advance collateral setup can offer crucial guidance as traditional markets consider a transition to 24/7 trading.

Meanwhile, another MarketMedia article suggests a different perspective: “We estimate that, as long as there is a closure for some time, most of the benefits are accrued, implying that it is likely a 23/7 exchange would be beneficial over the current popular market design of 6.5/5.”

How can tokenization be a solution to 24-hour trading challenges?

Tokenization can significantly improve collateral efficiency in the round-the-clock trading environment.

By converting assets into digital tokens on a blockchain, financial institutions can settle trades instantly, lower counterparty risk, and use collateral more efficiently. It would also enable retail and institutional investors to trade seamlessly across time zones.

However, tokenization adoption is still low, and uncertainty persists regarding its implementation.

How do markets determine the end of one trading day and the start of the next?

Another big challenge in 24-hour trading is determining when one trading day ends and the next begins. A TabbFORUM article explains that it should not be midnight.

Stock markets around the world operate on different schedules. When it is midnight in the US, markets in Australia, Japan, and Korea are already open. But there is a brief period after the US market closes when no major exchanges are open. Japan and Korea, for example, don’t open until 22:00 NY time.

Given the global trading patterns, it could make sense to pause the market earlier in the evening and start the next trading day before midnight.

Conclusion

It is still too early to determine the merits or long-term success of round-the-clock trading. The more pressing question isn’t whether markets will move to 24/7 trading, but when — and how smoothly we can make that shift.