What You Should Know About Stock Exchanges and the Stock Market Trading Hours
What You Should Know About Stock Exchanges and the Stock Market Trading Hours
Stock exchanges! What about them?
If you’re planning to take the stock market seriously, you need to know about the different stock exchanges. But, first, you must understand how stock exchanges work:
What are their trading hours? When do they open, when are they close?
This information is vital to helping you create your trading routine and pattern. For example, if you want to trade only the New York Stock Exchange (NYSE), you must follow the NYSE trading hours, not the London Stock Exchange.
Quick fact: There are 16 stock exchanges in the world with a market cap of over $1 trillion
So, what do you need to know about stock exchanges? What are the stock market trading hours?
In this article, you’ll get to know all that and more!
What are Stock Exchanges?
In simple terms, stock exchanges are where you can buy and sell securities. Stock exchanges act as a platform that connects buyers and sellers (investors) of stocks and securities. In addition, they bring government and corporations together so that investors can trade.
Think of a stock exchange as a marketplace for stocks and other securities.
With stock exchanges, investors can make informed decisions using their real-time price information. For companies, stock exchanges help them raise capital.
Stock exchanges can be classified into:
Auction-based
Electronic exchanges
Auction-based Stock Exchanges
Auction-based stock exchanges allow buyers and sellers to interact directly at a physical location. Brokers and traders communicate verbally openly to buy and sell stocks. That is why it is called the open outcry system.
Auction-based exchanges are pretty competitive; it keeps everyone on their toes on the trading floor. Everyone puts in competitive prices and offers. The buyer wants to buy as low as possible, while the seller wants to sell as high as possible.
The bid-offer spread is the difference between the ask price and the bid price. The bid price is the highest price the buyer is willing to spend. While the ask price is the lowest, the seller is willing to accept. Therefore, a trade can only happen when a seller accepts the bid price or a buyer takes the ask price.
Auction-based stock exchanges are fast-paced and bubbly all through the trading hours. However, the auction system is slowly getting outdated and replaced by electronic systems. But some important stock exchanges like the NYSE (New York Stock Exchange) still use this system.
Quick Fact: The New York Stock Exchange is the largest equities-based exchange in the world!
Electronic Exchanges
Electronic exchanges are entirely digital; there are no physical trading activities. So, it doesn’t require any specific centralized location for sellers and buyers to buy. Instead, the traders use an electronic platform to carry out buying and selling.
Electronic exchanges usually stream the live market prices with additional trading tools. The trading tools include charting packages like technical indicators and news feeds to help investors analyze the stock market.
With electronic exchanges, trading is faster and more efficient than most traditional trades. As a result, they carry out billions of dollars worth of transactions every day.
Quick fact: The Nasdaq is one of the world’s leading electronic exchanges in the world
How Stock Exchanges Work
The first thing to know is that you can only trade listed (available) stocks on an exchange. And a company’s stock becomes available on an exchange after its IPO (Initial Public Offering). After that, the company sells its shares to the first public shareholders in the primary market.
The primary market is where companies issue new security that has not previously traded on any exchange. Companies issue out securities directly to investors through an IPO or FPO (Further public offering) in the primary market.
After the IPO, the stocks/shares can be sold and purchased in the secondary market. The secondary market is where investors can buy and sell investors from other investors. This is where stock exchanges come in. Thus, stock exchanges are the secondary market.
The exchanges are in charge of tracking the flow order (supply and demand) for each stock or security. The supply and demand determine a stock’s price. If the demand is higher than supply, the price increases, and when the supply is lower than demand, the price decreases.
The bid-ask spread is a result of the difference in a seller’s and buyer’s price. For example, if a stock’s bid price is $100, that means an investor is willing to pay $100 for that stock. However, if the ask price is $120, another investor is willing to sell for $120. The difference is the bid-ask spread. And the trade will only happen if one of them is willing to compromise.
What are Stock Trading Hours?
The stock trading hours refer to the regular trading hours for an exchange. Thus, the stock trading hours are when the majority of trades get executed.
Most stock exchanges are usually open Monday to Friday and close for weekends and holidays. Except for the Saudi Stock exchange that runs from Sunday to Thursday. Some exchanges close within their trading hours for lunch breaks.
Quick Tip: Not all trades are carried out within the regular trading hours. The premarket and after-hours allows traders to buy or sell stocks outside the regular trading hours. However, this is primarily accessible to large institutional buyers.
Notable Stock Exchanges and their Trading hours
NYSE
The NYSE (New York Stock exchange) was founded in 1972 and is the largest stock exchange in the world. That is because it has the largest based equities based on the total world capitalization of its listed securities.
Its market cap is at $26.2 trillion this year. It is located in the heart of New York City and follows Eastern Time. It is open from 9.30 am to 4 pm EDT during weekdays with no lunch breaks.
Nasdaq
Nasdaq is the largest electronic exchange and the second-largest stock exchange behind NYSE. The National Association of Securities Dealers (NASD) created Nasdaq. Located in New York, it follows Eastern time. It is open from 9.30 am to 4 pm EDT on weekdays with no lunch breaks.
Euronext is the largest stock exchange in Europe. Its market cap is valued at $5.08 trillion. The exchange opens from 9.00 am to 5.30 pm during the weekdays with no lunch breaks.
London Stock Exchange
The London Stock Exchange (LSE) is the second-largest stock exchange in Europe and is located in the United Kingdom. Its market cap is valued at $3.83 trillion. It is open 8.00 am to 4.30 pm BST with a 2 minutes break between 12.00 and 12.00 pm.
Tokyo Stock Exchange
The Tokyo stock exchange is the largest in Japan. It has over 3000 listed companies and a market cap of around $5.6 trillion. It is open during the weekdays from 9 am to 3 pm JST with a lunch break between 11.30 am – 12.30 pm.
Shanghai Stock Exchange
It is the largest stock exchange in China, with a market cap of $6.56 trillion. The Shanghai Stock Exchange opens from 9.30 am to 3.00 pm CST with a break between 11.00 am and 1.00 pm.
Conclusion
Stock exchanges are essential to your trading journey, and there are so many to choose from. However, keep in mind that you can only trade securities listed on an exchange. So, if you have stocks you’d prefer to trade, make sure they are listed on the stock exchange you’d want to trade with.
You will also get better results if you focus on the best part of the stock trading hours. Don’t try to trade all day. Instead, identify the periods with the best opportunities and design your trading around these periods.
