Expanding the pre-market arena isn’t the only way exchanges have enabled additional trading time. Last year ICE started offering grain futures 22 hours per day. In response, last May CME Group also expanded its trading hours for grain and oilseed markets, from 17 hours a day to 21 hours, though it announced this week that it would cut back grain and soy futures trading to 17.5 hours.
Exchanges are also capitalizing on cross listing, or listing a product on an exchange other than the home market where the underlying securities reside. By using exchanges around the globe, products can be traded at any time. The Korean Stock Exchange’s Kospi 200 index, for example, is traded essentially 24-hours a day, after cross listing with Eurex.
There are more benefits to longer trading hours than additional liquidity. Pre-market and after-hours trading also allow traders to take advantage of earnings reports and other market-related news releases. For example, the extended trading hours introduced by ICE and CME Group last year enabled for the first time the trading of futures as the USDA releases its grain reports.
Despite the enthusiasm among some participants for extended trading hours, however, there are challenges. CME Group reversed its seven-month-old decision to extend grain futures trading hours after a backlash from traders who were unhappy with the change. Traders complained that the longer hours provided little additional liquidity, and some argued that a faster reaction to market reports isn’t always best for the market -- considering some reports are hundreds of pages long, traders hardly have time to carefully read them in order to gauge how to trade.
CME Group’s setback highlights questions around the trend. During trading periods that are defined by less liquidity and more volatility, one has to wonder if the effort is worth it. What will be required of traders as exchanges keep pushing the boundaries of trading hours? Are the longer hours really better if traders don’t have the time to make informed decisions on market information?
Even though questions loom about expanding trading windows, time still equals money. By increasing the amount of trading time, one can expect, logically, to receive some increase in profits. On top of this, exchanges face the pressure of competition. An innovation on one exchange often forces others to enhance their systems, as each one is seeking the proverbial worm for itself.