By Sylvain Thieullent, CEO of Horizon Trading Solutions
“Money never sleeps pal” – remember that infamous line from the 80’s classic Wall Street? Who would have thought this saying would become a literal reality. For over three decades since Michael Dougals graced our screens as go getter Gordon Gekko, making money in cash equity markets has been at the mercy of speed – as the pinstriped Gekko’s have been replaced by high-speed hoodie geeks. Milliseconds may have made the next generation of Gekko’s, but they have also broken fortunes of others – all at the click of a button. It is therefore intriguing to see the New York Stock Exchange (NYSE) contemplating what would be, frankly, a seismic shift to trading stocks around the clock, 24/7.
Equity investors have the rise of cryptocurrency trading to thank, or not thank depending on your preference. Operating 24/7, crypto has set a precedent for round-the-clock market activity. Stock exchanges, traditionally confined by time zones, could now find themselves playing catch-up in a world where trading knows no bounds. As other major markets, from U.S Treasuries to leading stock index futures embrace continuous trading, the pressure on traditional stock exchanges mounts.
The issue is that sustaining high-speed trading operations in a 24/7 cash equities market would require underlying infrastructure capable of handling constant information streams, executing trades rapidly, not to mention responding to unforeseen market changes. Maintaining such infrastructure could become more costly than a Gordon Gekko stop loss. Particularly when one considers the cold hard commercial reality of trading around the clock. It essentially means encountering a diverse range of market conditions, including overnight news about wars breaking out. As regulators continue to assess the implications and market participants weigh in too, one thing becomes abundantly clear – the quality of algos deployed by financial institutions will be paramount in navigating this potentially brave new trading world. But why? Well, unlike humans who need their sleep, algos operate around the clock.
For financial institutions eyeing opportunities beyond U.S. hours, trading in the dead of night requires the need to navigate potentially volatile markets with precision and extreme quickness. The likes of Nvidia or Apple may be up for grabs between 8pm and 4am Eastern time, but seizing these opportunities demands algos that can operate effectively in the absence of human intervention. Outside of regular trading hours, liquidity tends to be thinner, meaning there are likely to be fewer buyers and sellers in the market at 2am (who would have thought). Thin liquidity can result in wider bid-ask spreads and increased price slippage, making it more challenging for high-speed traders to execute trades at desired prices. Only algos capable of analysing vast volumes of data, detecting patterns, and executing trades with split-second precision will separate the winners from the losers. Moreover, with regulators scrutinizing every move, ensuring the integrity and reliability of these algorithms is key.
The transition to a 24/7 stock exchange is not without its challenges. Yet, it presents a wealth of opportunities for those equipped to navigate its complexities. While the allure is undeniable, the risks are equally substantial. As the NYSE contemplates the future of trading, one thing is clear – in the 24/7 era, the quality of algorithms reigns supreme. Failure to adopt the right algo risks consigning them to irrelevance in a market that never sleeps.
