The overnight market refers to trading that occurs outside of the regular trading hours of a financial market. For stocks, this would be after the closing bell and before the market opens the next day. For futures and forex markets, which are more continuous, the overnight market might refer to the period when the primary exchange is closed but electronic trading is still available.
Key Features:
- Lower Liquidity: The overnight market typically has lower liquidity compared to regular trading hours, which can result in wider bid-ask spreads.
- Higher Volatility: Due to lower liquidity, price movements can be more volatile, making it riskier for trading.
- Limited Participants: The overnight market usually has fewer participants, which can include institutional investors, hedge funds, and individual traders.
- Global Influence: For markets like forex and commodities, overnight trading can be influenced by events or data releases from other countries.
- Gap Risk: The risk of prices “gapping” significantly from one day’s close to the next day’s open is higher in the overnight market.
- Extended Hours: Many trading platforms offer extended hours trading to accommodate overnight market activity.