Whether you’re new to investing or not, it may surprise you to know that the stock market has a set time during which it’s open.
After 4 PM EST, the stock market closes.
Considering that a lot of stocks are now traded on the internet, it may seem odd that the stock market closes.
People who trade cryptocurrencies like Bitcoin and NFTs are able to perform trades regardless of the time.
You may think that if the stock market were to remain open, it would give investors more opportunities to earn money.
Here are 3 reasons the stock market closes.
Why Does The Stock Market Close? (3 Reasons)
The stock market has always closed at 4 PM EST.
Since its inception, the stock market has had set hours of operation.
It opens at 9:30 in the morning and closes at 4 PM.
The reason that it closes at 4 PM instead of 5 PM like many other businesses is that it takes time to write up and finalize the paperwork for bought and sold stocks.
By the time they finish, it’s 5 PM.
This gives everyone involved with the stock market the chance to have that final hour to complete paperwork.
There may come a day when the stock market is open 24/7, but for now, it runs according to tradition.
2. Traders Need Sleep
Another reason that the stock market closes is that it forces day traders to sleep.
Some zealous investors already have a hard time putting down their phones and keeping from checking the market every few hours.
If they had their way, then they’d probably never leave the stock room floor.
Having a set time for when the market is open and closed forces investors and day traders to get some rest.
This ensures that they’re able to look after their health, spend time with their family and friends, and essentially keep healthy during the off-hours of the market.
3. Reduces Volatility
One of the biggest reasons that the stock market closes is that it helps to reduce volatility.
The weekend is usually when some big news happens.
A company may reveal that its CEO has been embezzling.
Another company might sell to a larger company.
A company might unveil a new product line.
When something big happens with a company, investors take note.
If they feel that their investment is at risk, then there might be a flood to sell their stocks.
This could create a lot of volatility in the market.
Having hours off, like over the weekend, helps businesses coordinate a plan that can help assure investors that they’re still in the game.
One instance where having the stock market close was beneficial was during the 2008 financial crisis.
The government used the weekend to come up with financial plans to help soothe the stock market.
This prevented a crash.
Having the stock market close gives companies, the government, and other individuals the time they need to reduce the risk of investors pulling out.
Does The Stock Market Close On The Weekends?
Yes, the stock market closes on the weekends.
The stock market closes every day at 4 PM EST.
On Friday, the stock market remains closed through the weekend until Monday morning.
At 9:30 AM EST, the stock market opens once more.
The stock market closes on the weekend for the same reasons the stock market closes at all.
The market has always closed on the weekend.
That tradition continues to this day.
The weekend also allows traders, investors, and financial advisors to rest and relax.
It gives them enough time to sort out their own finances or make a plan for the following week.
Finally, it helps reduce the chances of the market crashing.
The weekend gives everyone a few days to do some crisis management to avoid a crash.
While some trading is still possible on the weekend, the New York Stock Exchange and NASDAQ stock markets aren’t open for the weekend.
How Do You Trade On The Stock Market When It’s Closed?
If there’s a particular stock option that you want to pick up but the market isn’t open, then you may wonder how you can make the trade.
First, it’s worth noting that if you plan on trading on the stock market, then the trade won’t process until Monday morning when it opens.
Unless you put a limit on your order, there’s a good chance that you’re going to be buying or selling at a different price than you thought.
That said, there are a few ways that you can trade and invest even if the stock market isn’t open.
Here are a few of those methods.
One way that you can trade is through Forex.
Forex is a foreign exchange market that’s open 24 hours a day in different parts of the world.
It’s set between the hours of 5 PM EST on Sunday to 4 PM EST on Friday.
Forex isn’t part of the stock market, however, so that’s worth keeping in mind if you want to do some trading after hours or on Sunday night.
2. Cryptocurrency Trading
If you want to trade but hate the business hours restriction, then you might want to consider trading cryptocurrency.
There are several different cryptocurrencies on the market now.
Some have a bit more legitimacy than others.
The advantage of trading cryptocurrency is that you’re not tied to the stock market.
You can trade cryptocurrency at any time.
You only need to do so on a site that allows crypto trading.
Some investors consider crypto trading the future of stock trading because it’s available 24/7.
They believe that one day, the stock market will also be open 24/7.
3. Trade On International Exchanges
Thanks to different time zones, you can still trade a little before and after the stock market opens and closes.
International stock exchanges have different hours of operation because they’re in different time zones.
For example, while it might be 4 PM EST in the United States, it might be 9:30 AM elsewhere and the stock market might be opening there.
This allows you to immediately go trade on a foreign stock exchange instead.
Not all stock exchanges recognize the same holidays either.
If NASDAQ isn’t open because of a federal holiday, then there’s a chance that a foreign stock exchange might still be open.
This allows you to continue to trade even if the stock market isn’t open.
4. After-Hour Trading
Some select investors are able to participate in after-hours market trading.
These types of exchanges are usually by invitation only, so it can be difficult to get involved with them.
However, it’s possible to find after-hour trading opportunities on other trading sites.
Keep in mind that you’re still going to run the risk of buying or selling at one price only to actually buy or sell at the real price come Monday morning.
There’s always a risk with after-hour trading.
What Happens If You Buy Stocks When The Market Isn’t Open?
If you’re eager to do some investing but the stock market isn’t quite open yet, then you may wonder what happens if you do buy stocks when it’s closed.
Like all investing, it’s a gamble.
Because the stock market doesn’t open until Monday, your buy order won’t process until then.
When it does process, unless you put a limit on your order—which really only affects selling, anyway—you could end up buying at a different price.
The bid/ask spread widens over the weekend.
That means the risk also increases for both the seller and the buyer.
A bid is the highest price that the buyer is willing to pay for a stock.
An ask is the lowest price that a seller is willing to accept for a stock.
The difference between the bid and the asking price is called the spread.
If the spread is high, then that means there’s low liquidity.
If the spread is low, then that means there’s perfect liquidity.
Here’s an example.
A trader sees that his shares are selling for $13.
He originally bought his shares at $10 and would like to capitalize on his gains.
The stock market, however, isn’t open.
He puts a market sell order to sell all his shares.
Since the stock market isn’t open, the order isn’t processed, but it’s there for the next morning.
Unfortunately, there was news overnight that the CEO of the company was embezzling money.
When the stock market opens the next day, the price for the shares has decreased to $8.
Because the trader had put his shares up for market sale, he ends up selling his shares at a loss.
If he had traded during the day, when the stock market was open, he could have seized the opportunity to sell at $13.
The computer would have processed the order then rather than the next morning.
What’s The Best Way To Trade When The Stock Market Isn’t Open?
If you want to limit the amount of risk that you take on as an investor, then you shouldn’t trade when the market isn’t open.
However, if you are a risk-taker, then there is one method you can use to help reduce the risk.
If you’re going to sell stocks during off-hours, then you should always sell your stocks as a limit order.
A limit order allows you to sell only if a buyer is willing to buy the exact amount that you’re offering and at the exact price that you’re asking.
The order does not go through if neither of those conditions is met.
This is better than a market sell which essentially sells the number of stocks that you listed at market value.
That said, if the market value attached to your stocks decreases, then there’s a chance that your stocks won’t sell.
No one wants to buy more expensive stocks when there are cheaper options available.
However, the benefit is that you don’t lose your stocks either.
You can hold onto them and try again when the market is more favorable.
This is different from a market sell which would have decreased the value of your stocks to match the value in the market.
You could have potentially lost money on the trade since someone likely would have bought the offer since it was low.
To trade during the off-hours of the market more safely, you should consider selling your stocks as a limit order.
What Holidays Close The Stock Market?
The stock market observes federal holidays.
As such, it isn’t open when banks or government buildings aren’t open.
Here are the holidays that the stock market recognizes:
- New Year’s Day
- Martin Luther King, Jr. Day
- Washington’s Birthday
- Good Friday
- Memorial Day
- Juneteeth National Independence Day
- Independence Day
- Labor Day
- Thanksgiving Day
- Christmas Day
Besides having those days off, the stock market also shortens its hours.
On Christmas Eve, for example, they close the stock market at 1 PM EST.
The same goes for July 3rd before Independence Day.
The stock market usually gives a warning about shortened hours.
This allows investors to know how much time they have to buy or sell before the market closes for the holiday.
Why Does The Stock Market Close On Holidays?
You may think that because the stock market is an important part of the economy, it’s open all the time.
That isn’t true.
The stock market takes off major holidays like most federal services and banks.
Here are a few reasons stock markets close on holidays.
1. Closed Banks
One of the major reasons stock markets close on holidays is that banks are also not open.
It’s difficult to do business when you can’t contact your bank to authorize the release of large amounts of money.
There’s also a chance your financial advisor at your bank is also out of the office since it’s a holiday.
Stock markets and banks are closely associated.
If banks aren’t open, then it doesn’t make much sense for the stock market to be open.
Those who monitor and supervise the market floor want to celebrate the holidays with their friends and family, too.
They can’t do that if they’re stuck on the stock market floor watching day traders.
Even if a day trader doesn’t have much of a life outside of trading, those involved with the market might.
As such, the stock market closes to let its employees celebrate the holidays with their families.
It also encourages traders to put down their phones and celebrate with their friends and families, too.
The stock market closes on holidays to give everyone the chance to pay their respects toward that particular holiday and spend time with those that matter.
3. Added Day Of Stability
Sometimes a holiday can come at exactly the right time.
If there’s a financial threat looming, then the holiday gives the stock market, banks, and businesses an extra day to handle the crisis.
By the time the holiday is over, the business or government might have good news for investors.
Holidays can sometimes circumvent a financial disaster.
Does The Stock Market Close For Foreign Holidays?
Some stock markets, like the North American foreign exchange market, include the United States, Canada, and Mexico.
All those countries have different holidays that they celebrate.
While they share some, they also have holidays that they do not share.
For example, the United States has its Independence Day, but that isn’t a holiday that’s observed in Canada or Mexico.
As such, some investors may wonder if they’re still able to trade on foreign exchange markets even if it’s a holiday.
The answer is yes you can trade but not to that particular country.
For example, if Mexico is celebrating a holiday, then its section of the stock market isn’t open.
However, traders can still buy and sell with the Canadian and American portions of the stock market.
That’s because the local stock exchange in Mexico isn’t open.
It’s also worth noting if the market has limited hours.
Some markets may still be open but only for a limited time.
If you trade in a foreign exchange market, then it’s worth finding out about the local holidays to ensure you don’t find yourself making a mistake.
Stock markets close because it gives the workers and traders a chance to go home and rest.
It also helps businesses do some crisis management to help reduce the risk of losing their investors.
Stock markets close on the weekend and national holidays as well.