The Law Dictionary

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What Is Night Trading Definition & Legal Meaning

Definition & Citations:

Night trading is the buying and selling of stocks, commodities and currencies during those hours when the stock markets are closed. For example, the NYSE and the NASDAQ are open for day trading from 9:30 AM to 4:00 PM. As stock markets operate in different global time zones, the down time for a market depends on which market a trader is using.

Night trading was made legal by the Securities and Exchange Commission (SEC) in 1999 with extended hours for trading stocks. Not many stock trades happened during the closed hours which limited the opportunity to buy and sell quickly. Night traders, who bought stocks at a given price, were not able to find a buyer, and saw those same stocks sell for less when the markets opened. Night trading took on more appeal and activity when the future exchanges began trading contracts 24/7. Today, individuals can night trade around the clock as they follow the various down times around the world.

When large companies announce major changes after the stock market closes; individuals can react to these changes before the market opens.

If there has been a major environmental crisis, such as a devastating earthquake or a ruptured oil pipeline; individuals can sell stocks and futures that will be negatively effected and buy stocks and futures that may benefit from a crisis, all before the day trading begins.

Currency investors monitor the changes in foreign currencies as they are happening during the overseas day trading hours and investors can buy and sell favorable currencies before they are available to day traders.

<strong>NIGHT TRADING RISKS</strong>
The SEC suggests a beginning night trader use a brokerage that meets an investor’s needs, whether that is crude oil prices, currencies, precious metals, grains, or other equities. The SEC publication,, advises investors of potential risks when engaging in night trading. The major risks mentioned are:

–The possibility of less trading volume, making it more difficult to buy and sell for a profit.

–Prices may vary widely from those quoted at the close of day trading. This could impact someone’s profit margin or this could make one investor’s sell order undesirable to another investor.

–Small investors are competing with large professional traders who may have more information and can act more quickly on a trade.

–Computer delays and interruptions can impact a trader’s ability to place and complete both buy and sell orders.


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