Trading hours
Outside the main trading hours, spreads are wider and prices worse. Crypto markets run around the clock, and that brings its own problems.
Learning objective: After this lesson you can explain why the time of day affects how well your order is filled.
Shares and ETFs are traded on exchanges at fixed times, on Xetra for example from 9am to 5:30pm on weekdays. During these main hours there's the most going on, spreads are tightest and prices most reliable.
Trading Outside Core Hours
Many providers also let you trade early in the morning or late in the evening, but with fewer participants. Spreads are wider and you pay more for the same order. The first quarter of an hour after the open is also unfavorable, because prices are still restless.
Other Time Zones
If your ETF holds shares from another time zone, there's something else. If you buy an ETF on American shares at 10am, the New York exchange is still closed. The price is then estimated, and dealers charge for that estimate with a wider spread. In the afternoon, once New York is open, it's usually cheaper.
Crypto Without a Break
Crypto has no trading hours. That sounds convenient but has a downside. There's no break in which the market calms down, and the sharpest moves often happen at night or at weekends, when little is going on and hardly any buyers are around.
Liquidity is spread unevenly across the day. A U shape is typical: lots of volume at the open and the close, less around midday. Prices swing most at the open, because everything that happened overnight is being processed. Spreads are wider then, and your order is filled more expensively on average.
Liquidity Through the Day
If the home exchange of the shares in a fund is closed, dealers don't know exactly what it's worth either. Market makers then estimate the fair value from other things being traded at the time, such as futures on the American index. That estimate is less certain. They charge a wider spread for it, and the price deviates more from the fund's actual value.
A Closed Home Exchange
Exchanges start the day with an auction. All orders are collected and a common opening price is found, even after news overnight. Crypto markets have nothing like that. New news hits directly in ongoing trading, often in hours with little activity. That makes jumps more likely and more easily triggers many liquidations at once.
Summary
- Spreads are tightest during the exchange's main hours.
- The first quarter of an hour after the open is especially expensive.
- Crypto without a break means sharp moves in quiet night hours.
Did you get it?
Why is the open a poor moment for an order?
Because prices swing most and spreads are widest while the overnight news is processed.
What happens when the home exchange of the shares in the ETF is closed?
The value is estimated. Dealers charge a wider spread for that, and the price deviates more.
What's the drawback of round the clock trading?
There's no opening auction to bundle orders. New news hits during quiet hours, and jumps are more likely.
Check your understanding
Your task
In your demo account, compare the displayed spread of an ETF at 9:05 a.m. and at 11:00 a.m. and note both values. Write two sentences on why an ETF on U.S. stocks can have a wider spread at 10 a.m. German time than in the afternoon, and at what time you would place your order.
Sources and further reading
- Academic research on the classic U-shaped pattern of trading volume and volatility across the trading day, with heightened activity around the open and close. View source ↗
Related
- Spread, slippage, and liquidityStage 2
- Order typesStage 2
- Crypto exchange vs. brokerStage 2
- Matching questions for this stageQuestions