Futures The Difference Between Night and Day

I started my 24th year of Futures trading this month and have been reminiscing about the path that the Futures industry and I have both taken during this time:

  • Instant fills on electronic platforms compared to waiting minutes to hours for a price fill from the exchange floor
  • No more watching price trade through your limit order in the Bond pits and then calling to ask for your fill price and hearing "unable to fill, still working the order"
  • Computers that now plot charts as far back as 25 years or more on some markets with just the click of a mouse instead of paper charts plastered to the office walls with X's and O's all over them
  • News on your screen almost as fast as it happens instead of reading about it in the paper the next day
  • Commissions to trade Futures at $4.00 round turn instead of a "discounted" price of $50
  • Trade statements arriving via snail mail 3 days after you placed a trade only to find out that Cocoa trade you thought you were in is now a Copper trade
  • Trading the Bond market from 9:00 EST to 3:00 EST because that was the only time the entire world had to trade this enormous market; today we trade almost 24 hours per day and this helps reduce the risk of gaps

And the list goes on and on...

One thing that has changed in the Futures markets that has not changed amongst traders is the definition of the trading sessions. I believe in uniformity and consistency when it comes to trading. My intent of this article will be to demonstrate the different trading sessions of the Futures markets.

Originally, we only had the trading pits to execute our trading orders in. This was the case for well over 100 years and it proved very efficient, but eventually, not cost effective. As the world became more global in nature pertaining to trading, there was a demand for overnight trading while the trading pits were closed. Plus, the exchanges knew they could not staff the exchanges with people 24/7 due to the cost. The US Futures exchanges were not able to compete with the European markets that were pure electronic and therefore, had lower operating cost. These higher costs that the US exchanges had were being passed on to their customers who were slowly leaving for the less expensive European exchanges. This was the writing on the wall for the US exchanges to come of age and start building their own electronic trading platforms. The recent merger of the major exchanges here in the US (CME acquiring the CBOT, NYMEX & Comex) were directly related to the cost cutting that had to be done to be competitive with international exchanges.

Electronic trading got its start around 1987 in the US at the CME exchange. Electronic trading never really came to the public eye until 1997 when the CME announced the mini S&P contract, and then in 1999 with the mini Nasdaq 100 contract. At that time, there were still multiple exchanges and that meant there would be multiple electronic trading platforms to start. Once the CBOT announced the mini Dow contract, they came up with the ACE platform while the CME had the original Globex platform. The CME platform was more reliable than the CBOT ACE platform. There were times we would be trading the Dow futures and the ACE platform would crash (almost a daily occurrence). If we were long the Dow market, we would go to the CME platform and sell at Nasdaq until the platform was fixed; this was, in essence, a hedge. As is the case today, when the electronic platforms stop trading, the pits keep on trading and the price swings can be very wild during this time. Your resting orders (stops and targets) that are on the platform are not working in the markets until the platform is working again. This is one of the reasons I advise you to open a Futures account with somebody who will give you pit access in case you ever need to execute an order while the electronic platform is not working. Pit orders and electronic orders are interchangeable, meaning you can buy one contract in the pit and offset (sell) the same contract on the electronic platform. Today, the CME Globex platform is built so well that it rarely goes down. I can only think of a recent time about a month ago when the Natural Gas side of the platform went down, but otherwise, this platform rocks for reliability. With the merger of the major exchanges and the creation of the CMEGroup, the Globex electronic platform is the premier platform for over 85% of the world Commodity Futures contracts.

Now, let's visit an area where the confusion seems to be about the terminology of the session we are trading in. The mistake traders today seem to make is to define certain sessions of the day as the Globex session. This is both right and wrong and I would like to clarify and hopefully correct this error. Today, Globex means more than just the night session.

When electronic trading started, the floor traders objected to letting the electronic Globex platform trade during the day session while the pits were open. The floor traders felt the platform would take away the contracts that would normally come through the pits, and since floor traders were usually the market makers, this would reduce their earnings potential. As we look at the markets today, they were exactly right.

Since the Globex platform was only allowed to trade after the pit session had closed and would trade up until the pits opened again the next day, this session became known as the Globex session. Since there are so many markets, I will refer to the S&P contract for our example. Traders would define this Globex session as trading from 4:30 pm EST to 9:30 am EST the next day at which point it would stop taking electronic orders and all orders had to be routed through the pits until after the pit close. The hours for pit trading were 9:30 am EST to 4:15 pm EST. During this era of hybrid electronic and pit trading, you would have been correct to define the afterhours as the Globex session because that was the only time the platform was allowed to execute orders.

It was not long before the exchanges and the floor traders (reluctantly) allowed the electronic platform to trade side-by-side (simultaneously trade) with the pits. This meant that traders could either enter their orders electronically through the Globex platform, or call their orders into the pits. Once the change occurred, the Globex platform was trading almost 24 hours per day. This means that the original term Globex session (4:30 pm EST to 9:30am EST) no longer exists. Now you refer to the Globex session as trading from 4:30 pm EST to 4:15 pm EST to identify the entire session of mini S&P trading. This would be an entire candle on the daily charts.

With this new Globex session, there have been some session times created to help break down the 24 hour session so we can isolate the most liquid time of the trading day and the after hour's sessions. These sessions are referred to as:

  • Regular Trading Hours (RTH) = The time of day that the pits are trading and/or the most liquid (largest volume) time of the day. For the mini S&P's, that time will be 9:30 am EST to 4:15 pm EST.
  • Extended Trading Hours (ETH) = This will begin after the RTH end and stop just before the RTH start again. ETH for the mini S&P would be 4:30 pm EST to 9:30 am EST.

This is helpful information when it comes to charting Futures markets. For the trader who wants to see daily gaps in the market, they will want to chart the RTH sessions to see the 9:30 am EST open compared to the previous days 4:15 pm EST close. Also, this time of day has the most volume traded all day long and the highs and lows created during this session may take on a different meaning than a low made at night on very low volume.

For traders who want to see the range of the overnight markets, they can chart the ETH session (4:30 pm EST to 9:30 am EST) to see where the high and low was from that session. The markets have been trading for 17 hours since our RTH session has closed, and these high and lows on the ETH session are significant points of reference.

I would like to explain that this is not something I am dreaming up by trying to change names of trading sessions. Times have changed and we need to adapt to these new changes. If you look at the contract specifications, you will notice that most Futures trading hours are now referred to as RTH and ETH by the Futures exchanges. As traders, we are always interested in trading during the most liquid times of the day for both safety and opportunities.

"Success is the ability to go from one failure to another with no loss of enthusiasm" - Winston Churchill

Trade Hard, but Play Harder,
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