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June 30, 1999

Future Shock: What if the Market Tanks After Hours?

By William Hoffman

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  • Future Shock: What if the Market Tanks After Hours?
  • Page 2

What would happen if the market crashed during a coming after-hours trading session? Well, prepare for a harsh backlash, one expert warns.

While the debate over lengthening trading days on Nasdaq and the New York Stock Exchange for retail investors continues, there is a consensus about the inevitability of longer sessions.

A couple of knowledgeable market-watchers point out that extended hours are coming.

Longer hours are "probably one of those subjects that fall under the title of progress,'" said Michael K. Farr, president of Farr, Miller & Washington, a Washington-based money manager. "Even though I'm not sure whether it is or is not [progress], I see it as inevitable."

Jim Angel, associate professor in the McDonough School of Business at Georgetown University, also in Washington, agrees: "It's not fair to say that [stock markets] belong to any one country any longer."

Both Farr and Angel see a day in the not-too-distant future when stock exchanges will be trading 24 hours a day.

Serious Talks

Nasdaq and the NYSE started talking seriously earlier this year about extending trading until the mid-evening hours - a second session that would last from 5 p.m. to 9 p.m. Eastern time.

Both organizations hesitated recently: The NYSE postponed implementation of longer trading hours due to the Year-2000 computer bug, while Nasdaq has hedged on when it will begin after-hours trading.

Regardless of delay, Angel and Farr - along with others - agree that exchanges will sooner rather than later agree to extend their trading days. Yet some of the agreement ends there.

Angel said the westward movement of the U.S. population gets much of the credit for the push to longer hours. "I am very biased," said Angel, a former West Coast resident. "I thought it was the biggest crock that the market closed at one o'clock in the afternoon."

As more Americans move south and west, and more take an active role in their investment portfolios, the demand for longer trading hours is bound to grow, the professor added.

Farr fingered a more commonly - cited culprit: "The Internet provides the platform for it to happen. And there seems to be an appetite."

The flood of news and information - and most importantly, Farr believes-the reciprocal involvement of global investors in U.S. markets and U.S. investors in the world - are all driving exchanges to a 24-hour trading day.

"I think you'll see it within the next ten years," Farr said. Both Angel and Farr concur that increased volume and volatility won't be the problem some expect.

Angel noted that with shorter hours on the West Coast dictated by the 4 p.m. NYSE closing, volume trading on the West Coast falls off dramatically. While the NYSE remains the world's premier stock exchange, he noted, longer hours won't shift trading to smaller exchanges. But longer hours could erode the NYSE's position if it resists such change.

More Volume

Farr said that, for all the excitement about longer hours, no one has produced evidence that more hours will mean substantially more volume. The real winners from extended trading, then, will be the exchanges, he said, especially Nasdaq, which enjoys lower overhead costs.