Everything You NEED to Know About 23hr Trading (Coming in December) – Transcript

00:00What's up everyone? All right, in today's episode, I'm going to share with you all the details that you need to know to prepare for one of the biggest changes coming to the market in decades. In December of this year, the market will officially launch at the exchange level, a 23-hour trading day, which means if you want to day trade at 2 in the morning, you'll be able to.

00:21So, day traders, load up on that caffeine because our trading day just got 7 hours longer. You're going to have a ton of questions and I'm going to answer them all in this deep dive episode. So, currently, as you may know, the market begins at 400 a.m. for pre-market trading and that continues until 9:30 a.m. 9:30 a.m. until 4:00 p.m. are regular trading hours. So, this is pre-market,

00:47that's regular hours. 400 p.m. until 8:00 p.m. is the after hours trading session. The new market will have a closed window from 8:00 p.m. to 9:00 p.m. So, this is closed. This allows brokers to reset your buying power and settle your previous trades. And then from 900 p.m. until 4:00 a.m., we have a new 7-hour overnight window. And this means that if you want to trade in the

01:17middle of the night, you'll be able to do it. But there will be some restrictions. So, you may know that already a number of brokers for years have been offering 24-hour trading, but people haven't really been participating in it in a very meaningful way. So, if you use Robin Hood, you could execute trades in the middle of the night if you want to. And what they do is they actually route all of your orders not to NASDAQ because NASDAQ is closed overnight, but instead

01:46to an alternative trading system, a venue that executes orders during the overnight session. And so all these different brokers send their orders to this one venue and that venue gets to profit on all of that overnight order flow. Now, naturally, they're taking some risk in executing orders in the overnight session because they may execute orders above or below the price that the market

02:10will actually open at at 4:00 a.m. on the next day. But nonetheless, if traders are just buying and selling, then the market maker profits from that order flow and traders are buying and selling amongst themselves. So the the venue, it's not not actually the broker. Well, the broker profits too, but the venue profits just by the number of shares that are being executed through their alternative trading system, which is what it's called. It's called an ATS. So that's the way all of

02:37these overnight orders have currently been filled. However, as you would imagine, all of those orders and although it's not a tremendous amount, is money that's being taken away from NASDAQ and NIC, the New York Stock Exchange. And so, by having those exchanges now participate in the overnight session, they will make more money because now all that order flow will be able to go directly

03:02through the exchanges. Now the side venues will continue to operate as they do uh right now but more and more volume will be able to execute against the market and the pricing will be more accurate because you'll have more participants who are trading naturally because it'll be more accessible and so the alternative trading systems will be priced more closely to what the actual trading price is because there will be a proper NASDAQ best bid best offer NBBO. So, you may be

03:31wondering, are traders going to start trading at 1 or 2 in the morning? Well, if they were, uh, why? Well, why? Why haven't they already? Why haven't we already been seeing big moves in the overnight session? And there's one important reason. It's because in the overnight session, as of right now, we have halts. We also have halts right now between 9:30 and 400 p.m. So, during the regular trading hours, we have circuit breaker halts. And the rules of those halts essentially state that if

04:01a stock squeezes up more than 10% in less than 5 minutes, the stock will be paused for 5 minutes. And so these trading halts really slow down um the momentum on a lot of these stocks, which is why you see me doing most of my trading between 4 a.m. and 9:30 in pre-market because there are no halts. So, um I'll just do this will be the the halt column. So, we'll do no halts. Uh no halts.

04:26And what about uh okay so obviously the market's closed and so right now in the alternative trading venues they have halts so NASDAQ is actually going to adopt the same concept there will be 20% halt bands in the overnight session. Now, what that's going to mean is if a stock suddenly squeezes up,

04:48it will be paused from trading entirely until 4:00 a.m. So, if it squeezes up at 9:15 p.m. All of a sudden, up 20%, trading will stop until 4:00 a.m. That's a really long time to be stuck in a halt.

05:03And now you've got to wait till 4:00 a.m. to trade out of it. Now, these halt bands are interim. They're a temporary halt band concept for the initial launch taking basically what's been working for the overnight markets but they changed it a little bit and I think those changes while subtle are actually going to be fairly significant. So currently right now as you know

05:30we have halts regular hours and we have halts in the overnight session with the overnight venue. So those halts are at 20%. But the way they currently work is that there is no pausing trading. They just don't let you place any order up more than 20% from the reference price. So the stock is continuing to trade, but it's pegged at up 20% cuz no one can place a buy order higher than that. But

05:55if anyone wants to sell, they can sell. And so the price could actually dip back down and then come back up. So if we sort of had a chart here and you had the price moving up, well basically from yesterday's reference price, there is a 20% band down and a 20% band up. This is plus 20 and this is minus 20. And so the stock can trade right here for a while, then dip down, then come back up and

06:20trade right here. but it can't trade any higher till 4:00 a.m. The NASDAQ instead is taking the approach that if it trades at this level, boom, trading is halted and stopped until 4:00 a.m. So, that's a little bit different because now trading is actually paused and if you're in the stock, you're stuck until 4:00 a.m. That's not ideal. They've also made some changes to how the 20%

06:46is calculated. So currently the 20% is based on the reference price from the previous day. So the reference price from the previous day and it's plus 20% from that and it's down 20%. So it's very simple. The exchanges have changed it a little bit. And so what they've done is they've said well

07:07yes for a stock that is above let's see um above $15 a share. So, a stock is is $15 and up. The the halt band is 20%, that's fine. And the minimum width between the top and the bottom of the band, so minimum width, um, is $3. Okay. So, if the width is $3, um, right here, that's going to be

07:35$3 from the top band to the bottom band. $3. So, if the stock is at 15 right here, that's fine. Halt up, halt down, and those halt bands, as it turns out, are at exactly 20%. However, they're keeping the minimum of a $3 width, even for a stock as low as $2 a share. So, if a stock is

07:59$2 a share from the reference price, then what's confusing here is that the interim rules mean that the halt up is actually $5 a share. It's $3 up and the halt down is actually minus $1 a share.

08:16So, so now this is starting to get a little confusing because it it doesn't actually protect from downside loss. Um, so I don't know exactly why the exchange decided to deviate from what the overnight session has been currently doing that's been working well for years. Um,

08:37but they did. So we may see stocks that are in the lower price range under $15 making in in some instances bigger moves. Now the biggest move realistically going from $2 to $5 a share is 150%.

08:54So compared to hot markets where we're seeing stocks going up, you know, 500% a,000% or higher, the overnight session will still be limited in how much a stock can go up or well, it's not limited into the downside as of right now, but it will be still limited in how much at least a stock can go up when it's in the cheaper range. I think realistically, this is what's going to happen.

09:20Realistically, we don't have um I I don't think we have enough interest in the overnight session to see sustained momentum. I think what we're going to likely see is that volume is still concentrated with let's see total volume. This is going to still be the highest. Sorry, right here, regular hours. Uh total volume. We'll just do like a score of one out of 10. So this is going to be uh the 10

09:48of total volume. Pre-market is still going to be in the range of like 6 to 8. After hours is like 4 to 6 and the overnight session will be like one one to four I would guess. So there will be some volume but it'll be lighter and lighter volume generally means bigger spreads less liquidity and the the bigger spreads means it's very easy to make a mistake and to lose. So, we do have to be really careful during the overnight session not to get ourselves into a jam, especially on

10:18a stock that's very thinly traded. This likely these interim rules will likely get adjusted as um you know, as the exchange kind of gets initial data from the 23-hour markets and and figures out, you know, that these are good ideas or that this isn't working very well because you're still seeing stocks that maybe have bad news and are dropping. And that wouldn't have happened during a regular trading session because during the regular session there would have been more buyers

10:46that would have come in to support the price. So I suspect as always that these interim rules for the halt bands are going to change, but this is what it'll be at least starting in December and then we'll see in the coming months how they adjust it. So, in addition to um as you know, there's halt levels from 9:30 to 4 p.m., there's a couple other things that we have during the regular session.

11:11So, I'm going to draw a little couple of columns here. All right. So, we're going to go like this. So, one other is um market orders and stop orders. So, I'll just do market and stop. So, right now there are no market and stop orders pre-market. Yes, we have them during regular hours.

11:32No, we don't have them after hours. Obviously, the markets closed and they will not be during the 400 p.m., sorry, 9:00 p.m. to 4:00 a.m. session. There will be no stop orders. There will be no market orders. You can only do limit orders during those windows. What about options trading? Oops, I just do a different color. All right, so options trading here is the same. Options, not in the pre-market. Yes, in the regular hours, not in the after hours, not when it's closed,

11:59and not in the overnight session. Now, there is conversation about expanding options trading uh beginning at 7:30 and going until about 4:15 p.m., but only on a select handful of some of the biggest companies on the exchange in the S&P 500 essentially. And the reason is that imagine this.