We all know what day trading is. According to Wikipedia, day trading is "the practice of buying and selling financial instruments within the same trading day such that all positions are usually closed before the market close for the trading day." Well, that makes sense. If you are trading stocks on the New York Stock Exchange, the Market opens at 9:30am EST and closes at 4:00pm EST. So any positions that are both opened and closed within that time are considered a day trade.
But what about night trading? How does that work? The truth is…it works best for the Futures Market. Most Futures contracts trade nearly around the clock. So a trading day takes on an entirely new meaning.
Say you want to trade the S&P500 emini. This is one of the largest financial instruments in the world, with upwards of 3-4 million contracts traded daily. But the times that the emini are traded are not 9:30 to 4. The emini actually opens at 4:30pm EST and continues to trade around the clock until 4:15 pm EST the next day Monday through Thursday (it is closed down 4:15 p.m. EST Friday – 6:00 p.m. EST Sunday). So that gives a whole new definition to the word "day trader". There are other Futures Markets as well with nearly round the clock trading, so it is possible to trade at night, no matter where in the world you live.
For example, say that you want to trade the Euro / Dollar pair in the Futures Market, the 6a is the contract name. That trades from 6:00pm EST to 5:15pm EST Sunday through Friday. So no matter where you live, you can trade this instrument. If you live in the USA, and are an early riser, you can start trading at 5:00am EST. By 7:00am EST when you are ready to go to work, you’re already done trading. Or maybe you would like to trade after work, say 7:00pm EST. Since the 6a trades round the clock, you will be able to trade it at that time too. There is plenty of action trading this instrument no matter what time you choose to trade.
It used to be that night trading was not a very active. The exchanges, such as the New York Stock Exchange (NYSE) and the NASDAQ, offered what they called extended hours trading for stocks. But there were so many limitations with stock night trading that no one took it seriously. One of the main problems was lack of liquidity, namely no one trading. Liquidity is all about how fast you can convert your stock into cash. There must be active buyers and sellers in order for you to enter and exit trades quickly. In the world of stocks, from 9:30am to 4:00pm this is a no brainer. There are plenty of buyers and sellers for most of the best traded stocks. But at 4:00pm, those buyers and sellers go home, so extended hours trading for stocks is not very liquid. You might get caught in a trade for hours.
Another problem with extended hours trading of stocks is the spread, the difference between the bid (what you can buy stock for) and the ask (what you can sell it for). During the day, when buyers and sellers abound, the spread is generally very small, 1-3 cents. But off hours, that spread can be much larger. And with no liquidity to boot, you might pay a lot more for the same stock you could purchase during the day for less. So the world of night trading stocks never garnered much attention.
Enter the world of futures trading, with the Chicago Mercantile Exchange (CME), the New York Mercantile Exchange (NYMEX), and Intercontinental Exchange (ICE). With futures contracts trading around the clock, now night trading takes on a whole new meaning. You will find all the liquidity you want and the spread is no different than during the day. You can trade equities, commodities, crude oil prices, spot gold, and every get involved with currency trading.