Evening Trading: What It Is and Why It Can Be Useful

Today we are discussing a type of trading that is not well-known, at least not in Europe: evening trading. In a sense, the main characteristic of this practice is suggested by its name. In this article, however, we present an in-depth overview and discuss the advantages, disadvantages, and peculiarities. We will refer particularly to the world of stocks but also investigate "evening trading" in the currency market, namely in Forex.

What is meant by evening trading

Evening trading is exactly what it seems at first glance: a type of trading that is carried out in the evening, during the evening hours. As already mentioned, evening trading is not well-known in Europe, consequently, it is little practiced. In the United States, however, it represents the norm for many investors. This does not imply, though, that evening trading cannot be practiced by traders residing in the old continent. This type of speculative investment is, in fact, available to everyone. Evening trading, in its purest sense, mainly concerns the stock market. It was born to offer the opportunity to invest even to those who, for various reasons, cannot do so during daylight hours when markets and various trading venues are officially open. The shift of trading activities to evening hours brings about some particular dynamics, some of which are to the advantage and disadvantage of the individual investor. We will discuss these in the next paragraphs.

The evening stock market

We have already mentioned it: if we mean evening trading in the strict sense, we are referring to the "evening stock market". Specifically, the After Hours stock market. This term refers to a real market, well-regulated and circumscribed from a time perspective. Specifically, the After Hours stock market allows trading to be carried out from 4 pm to 10 pm. Obviously, this time frame is calculated on New York time. Apart from daylight saving time, the time slot in question corresponds to 10 pm-4 am Italian time. Therefore, for Italian and European investors in general, one should speak of "night trading". You should not think of the evening stock market as a perfect and faithful copy of the daytime stock market. Also because not all securities and not all markets are available for this type of trading. In fact, the range of possibilities for those operating in the After Hours stock market is rather limited. However, we will discuss the disadvantages as well as the advantages in one of the next paragraphs.

"Evening" Forex

The discourse is different for the practice of evening trading in the currency market, namely in Forex. In this case, there are no prerequisites for an institutionalization of this practice. The reason is very simple: Forex never closes, except on Saturdays and Sundays. Basically, it is already possible to invest in currencies at any time of the day and night, including "evening". In general, this possibility is typical of unregulated markets, the so-called Over the Counter markets, a category which obviously also includes Forex. However, many other markets also belong to this category, some of which are borderline. The reference is clearly to the cryptocurrency market. Therefore, when it comes to Forex, evening trading is nothing more than speculative investment activity carried out during the evening and perhaps night hours. In this case too, however, there are some differences with the classic investment practice, the one carried out during daylight hours. Trading in the morning and afternoon is different from doing it from 5 pm onwards. The reason is simple: the main trading venues are closed. Although this dynamic may seem strange to the uninitiated and non-experts, the overlap between stock market sessions and Forex Trading activity heavily affects the dynamics at play.

Advantages and disadvantages of evening trading

What are the pros and cons of evening trading? To answer this question, it is necessary to make a distinction at least between the stock market and Forex, i.e., between institutionalized evening trading and evening trading understood as a simple investment practice. In the first case, the biggest advantage lies in the real possibility of taking advantage of a regulated market even after the close of trading venues. An advantage that mainly concerns all those investors who, perhaps for work reasons, cannot devote themselves to trading during daylight hours. The biggest disadvantage, on the other hand, has to do with the volumes involved. The After Hours stock market is practiced by few investors, consequently, liquidity is infinitely lower than in traditional sessions. This creates imbalances in terms of prices. In essence, in the evening hours, fluctuations become more unpredictable and deeper. Now, fluctuations represent an opportunity to generate a surplus. However, when they are hardly controllable, they become a formidable double-edged sword. There is, however, another disadvantage to consider. We mentioned it in the previous paragraph. We are talking about the relative scarcity of securities available to "evening" investors. In fact, those who practice the After Hours stock market can trade a very limited number of stocks and can only attend a few markets. As far as Italians are concerned, only stocks present in the FTSE MIB (including the Mid Cap variant) are available. As for evening Forex Trading, if it can be called that, the disadvantages are practically the same. In this case too, there is a significant reduction in liquidity, precisely because most investors prefer to attend the markets when trading venues are also open. After all, the link between Forex and the stock market is well established. In this case too, therefore, there is a tendency towards volatility, which risks causing some headaches even for the most experienced traders. Certainly, there is no reduction in supply. As we have already specified, and as all Forex traders know, the currency market is open 24 hours a day. Speaking of advantages, we could also adduce in this case the possibility of investing even for those who cannot do so during daylight hours. The advantages, however, essentially end here.