Since trading went global and developed global networks, exchanges began to offer extended hours to traders. Now small investors can trade "after hours," outside 9:30 to 4:00pm, no matter where in the world the trader live. For trading futures, after hours investing can be very lucrative. There are many contracts that are highly volatile during off hours. These include the currencies and energies. For example, crude oil trades all over the world. Very volatile times for crude trading are 3:00am to 8:00am EST. This is when the Europeans are apt to trade crude contracts.

Currency trading is also very popular off hours. Take for instance, trading the Australian Dollar vs the US Dollar, the 6A futures contract. This is very volatile from 7:00pm to 2:00am EST. The Market is closed, but the Australians are wide awake and trading. The Euro, 6E, trades well from 2:00am to 7:00am EST because the Germans/French/British traders are awake and productive.

Before deciding on night trading, you should make sure you know all the rules, all the differences between regular and extended trading hours trading. Consult your broker and make sure they give you all the disclosures pertaining to off hours trading. Commissions and margins can vary dramatically between brokers for after hours trading. Additionally, not all futures brokers are prepared to have off hours traders. Some may close down their trading desk at 4:15pm EST when the futures trading day ends.

While nite trading offers many investing opportunities and you may have to change your style of trading to handle the off hours Market conditions. As an example, there is less liquidity after hours. Liquidity equals your ability to enter and exit futures trades. There are fewer traders off hours. Liquidity depends on traders trading. With fewer traders trading, it is not as easy to complete a trade. During normal trading hours, futures buyers and sellers are in abundance. After hours, there are fewer traders and reduced volume.

Reduced volume means finding a trading strategy that works well in a flat market. To this end, Shadowtraders has developed the "Dog Park" strategy. This is tailored especially for off hours trading and relies on a flat market to be profitable. This is an easy trade to put on and as long as the market remains flat, can be very profitable.

One thing to consider while you are nite trading is greater price fluctuations. With fewer traders, should someone appear with 500 contracts, the impact of that on the futures contract could be greater than during normal trading hours when so many contracts are being processed that 500 contracts is just a drop in the bucket.

News stories released at night may have greater impact on futures price fluctuations. For this reason, you should tend to trade with limit orders (where you must enter a price at which you would like your order executed) not market orders (where you trade at the current price). If the price does jump because of someone trading with 500 contracts, you won't be giving up 2 or more ticks to get in.

Depending upon which contract you are trading, you'll need to be a bit cautious because you'll be trading against professional traders, who may trade with large numbers of contracts. They may have more access to information than you. This is especially true for news trades that occur regularly outside normal trading hours. Once you are familiar with trading off hours, you will see yourself getting up in the middle of the night to put on a trade. For those who are insomniacs or have cats that need to be let out in the middle of the night, this is an especially good time to trade. Contact Shadowtraders to get a feel for nite trading because they specialize in off hours trading.

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Article Submitted By: Barbara Cohen
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