Why Don't Stocks Trade Over Weekends?

From 1887 to 1952, stocks on the New York Stock Exchange traded from 10 AM to noon on Saturdays.  After 1952, however, stocks traded only over weekdays. Given all the advanced technology today, why don't stocks trade over weekends?

 

Source: Wikipedia.  

Two reasons for the status quo
One reason is that many money managers don't work on Saturdays and Sundays. Without those managers taking the other side of trades, the market tends to be less liquid. A less liquid market tends to be more volatile. It also tends to have wider spreads between bid and ask. That extra volatility makes it harder for non professional investors to trade without getting nickel and dimed.  

Another reason is that in times of crisis, weekends can be a natural circuit breaker. If something bad were to happen, weekends offer time for the market to digest news and time for the government to work behind the scenes to calm the market. In the depths of the 2008 financial crisis, the U.S. government used weekends for exactly that purpose, by working behind the scenes to save the financial system. The U.S. government, for example, convinced Goldman Sachs and Morgan Stanley to become bank holding companies over a weekend. Many bailouts and stop-gap procedures were discussed over weekends before they were implemented. 

One reason that no longer applies
Those things being said, the practical reason for not trading on weekends -- that floor traders on exchanges can't work 24 hours a day seven days a week -- no longer applies. Most trades today are handled by electronic communications networks, or ECNs, rather than by human floor traders.  Those ECNs have no problem working 24 hours a day seven days a week. 

Because the ECNs replaced floor traders, a close analogy of weekend trading-extended hours trading-was implemented during the 1990's. Extended hours trading is trading done outside of normal market hours. It includes pre-market trading, which is trading between 4 AM and 9:30 AM, and after-hours trading, which is trading between 4 PM to 8 PM. 

Like the weekends, stocks trading over extended hours tend to be more volatile because many normal market participants don't trade during that time, resulting in wider differences between the bid and the ask prices for stocks. As a result, many investors do get nickel and dimed. Despite the problems, however, market regulators have tolerated extended hours trading.

The bottom line
If the downsides of extended hours trading are tolerated, one can argue that weekend trading shouldn't be tolerated as well. The two are basically the same side of the same coin.

I think the reason why weekend trading hasn't been implemented is that there is inertia in the system. An inert object will remain inert until an external force pushes it.

I believe the Internet will be that external force that causes weekend trading to occur. With the Internet, everything is on, all the time. People can use information utilities such as Google or Wikipedia around the clock and on demand. Even the Internet's contentious cryptocurrency, Bitcoin, trades 24/7. 

Someone, somewhere will develop an Internet product that changes the minds of the people who decide market hours. Until then, we can only imagine what weekend trading would be like.

Boost your 2014 returns with The Motley Fool's top stock
There’s a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it’s one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2903481, ~/Articles/ArticleHandler.aspx, 10/22/2014 10:25:20 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement