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It's all digital and done with computers these days, so why bother? Doesn't that just make the system less liquid, which is the opposite to one aim of having the stock market?

Plus can't you just play the futures market after hours anyway?

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C'mon somebody! Answer this so I can quit checking it every three hours! –  MrChrister Jun 13 '11 at 3:14
    
@MrChrister : I reckon, I only put it in last night. Can't believe it's got 13 votes already! hint hint So whoever can give a good answer is sure to get many votes for it –  Joe.E Jun 13 '11 at 3:24
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To allow bankers time to go to the Hamptons. It's only fair. –  James Roth Jun 13 '11 at 3:31
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Further hint: the general shape of a good answer will: 1, revisit the historical reasons; 2, explain the recent impact of computers; 3, make a rationale for why humans are still needed to be in-the-loop; and (optional superbonus) 4, explain the trade-off between market liquidity, and human observer/control. –  Silver Dragon Jun 13 '11 at 7:50
    
There are stock exchanges in the world which work 6-days, 7-days or 24x7. So, are you just asking about a few particular exchanges? –  JBRWilkinson Jul 4 '12 at 9:04
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6 Answers

up vote 22 down vote accepted

While a lot of trading is executed by computers, a substantial amount is still done at the behest of humans. Brokers managing accounts, Portfolio Managers, and Managers of Mutual Funds doing stock picks etc. Those folks are still initiating a very large number of the trades (or at least one side of a trade). And those humans don't work 7 days a week.

it's not just computers talking to computers at the behest of other computers. And even a lot of places that use computers to create models and such, there are still humans in the loop to ensure that the computers are not ordering something stupid to be done.

I personally worked for a firm that managed nearly $20Billion in stock portfolios. The portfolios were designed to track indexes, or a mix of indexes and actively managed funds, but with the addition of managing for tax efficiency. A lot of complex math and complicated 'solver' programs that figured out each day what if anything to trade in each portfolio. Despite all those computers, humans still reviewed all the trades to be sure they made sense. And those humans only worked 5 days a week.

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I would think that the big players like hedge funds and banks and such would be monitoring the stock 24/7 regardless of whether the market is open. It's always day time somewhere in the world. With that in mind, I still don't understand why close the market? The futures market get traded whilst the market is closed. –  Joe.E Jun 13 '11 at 14:40
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Have you looked at the volumes that transact in various 'after hours' markets vs what transacts when the market is open? The alternate markets exist for those that really want them, which is another reason we don't NEED the main markets open 24/7. –  Chuck van der Linden Jun 15 '11 at 19:51
    
Hedge funds don't tend to like trading into a liquidity restricted market because it gets too expensive due to exaggerated price changes in response to what the hendge fund would be trying to accomplish. E.g increasing prices when they buy, falling prices when they try to sell. So hedge fund traders what to trade during the periods of maximum liquidity in order to get the best prices when both buying and selling. So while you might think they would monitor, it's mostly limited to following news, not prices on after hours markets –  Chuck van der Linden Jun 15 '11 at 20:05
    
that last comment makes a good point thanks. –  Joe.E Jun 16 '11 at 1:10
    
This answers why humans are necessary, but not why the market is closed on the weekend. Would there not be enough volume without those humans driving trades? –  Christopher James Calo Oct 23 '12 at 21:21
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"After-hours trading" and alternate venues allow one to trade outside of regular market hours. However there are a few reasons why you would not want to:

  • The purpose of an exchange is to improve liquidity by gathering all buyers and sellers in the same place at the same time. If trading was 24/7, not all market participants would be trading at the same time.

  • Some markets (including NASDAQ) depend on market makers or specialists to help liquidity. These exchanges are able to mandate that the market maker actively make a market in a security during a meaningful percentage of the trading day. Requiring 24/7 active market making may not be reasonable.

  • Trading systems, meaning both exchange infrastructure and market participant infrastructure, need maintenance time. It's nice to have the evenings and weekends for scheduled work.

  • Post-trade clearing and settlement procedures are still somewhat manual at times. You need staff around to handle these processes.

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+1 for some great specific examples of what I was pointing out in my answer, and why the market hours are still based on the hours of the human traders in those markets. –  Chuck van der Linden Jun 15 '11 at 19:52
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The after hours market has little volume, and this lack of activity makes for extra volatility. The participants mainly seem to be naive investors, who don't care what price they pay or get, and a few professionals who prey upon them. See, for instance, After-hours trades still risky. –  mgkrebbs Jun 29 '11 at 18:22
    
Not convinced on the maintenance argument. There are plenty of electronic systems that never go down. –  Christopher James Calo Oct 23 '12 at 21:17
    
Perhaps not so much computer maintenance as Account maintenance, a time for all the transactions to be 'settled' etc If things are going 24/7 it's harder to reconcile things as everything is always in motion. –  Chuck van der Linden Nov 15 '12 at 1:29
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The answer is 7-fold:

  1. Prior to 1928, the stock market was open on Saturdays, but not Sundays ... the Sunday closings were out of religious respect, and the fact that in those days most Americans lived on farms, and had to give their horses a day of rest or they would die ... so everybody took Sundays off.
  2. During 1928 & 1929, as the stock market was in its "bubble phase", many Saturdays were taken off to allow exchange staff to catch up on their paperwork.
  3. For months after the stock market crash of late 1929, Saturdays were taken off to allow exchange staff to catch up on their paperwork ... this time led by selling pressures.
  4. In the early 1930's, Saturdays began to be given off more often due to light trading volume, another result of the Crash and Great Depression.
  5. From the 4th of July 1945 through Labor Day Sep 1945, the stock market was closed all Saturdays ... since Victory in Europe was May 8th, 1945, and Victory in Japan was Aug 14, 1945, this probably also had the celebratory impact of wanting to close that summer starting with Independence Day.
  6. Then, for many summers after that into the 1950's, the stock market was closed all Saturdays from Memorial Day through Labor Day ... This begins to blend in the concept of, in general, society just wanting a shorter work week.
  7. In the 1950's, the stock market began closing every Saturday ... continuing this societal desire.

BOTTOM LINES: Bubble; bursting bubble; Great Depression; Victory in WWII; All work and no play makes Jack (& Jill) very dull persons.

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Any citation or reference to your expertise? I am not doubting, but some evidence would be nice. =) –  MrChrister Jul 7 '12 at 21:25
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NYSE Trading hours –  mhoran_psprep Jul 7 '12 at 23:22
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The stock markets are closed on week-ends and public holidays because the Banks are closed. The Banking is a must to settle the payment obligations.
So you may buy and sell as much as you wish, but unless money changes hands, nothing has really happened.

Now as to why Banking itself is closed on week-ends and public holidays, well a different question :)

Keeping the system 24 hrs up and running does not actually push volumes, but definately push expenses for brokers, Banks etc. There definately is some convinience to buyers and sellers.

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I don't think this is even true. Accounts are not settled immediately when you buy stock, and can be days or weeks later. –  DJClayworth Jun 13 '11 at 14:00
    
The process of settlement begins the same day [Day 0]. Normally on the date of transaction, the actual payment balances are arrived [Day 0]. Next day these are communicated to all parties [Day 1]. Typically by the following day [Day 2], the movement of funds is confirmed. There are some brokers who may extend your obligation by giving you a credit line. But they would have already paid up on behalf of you. –  Dheer Jun 13 '11 at 14:20
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There are a number of factors here.

1) It's important that there is human oversight on the system. At one level someone needs to be monitoring the computers that manage the trading to be sure they are functioning. At another level someone needs to be making judgement calls on important but rare events: when you you suspend trading in a stock? When do you close the stock exchange entirely? It is alleged that unsupervised computer trades were at least partly responsible for the May 2010 selloff. Even if that's unproven, would you really want those unsupervised computers trading with each other for a couple of days? Or even for a couple of hours?

2) Providing 24/7 trading would increase the cost of running a stock exchange, but with only a tiny improvement in liquidity.

3) If the stock exchange ran 24/7 then traders would have to run 24/7. That would add hugely to the cost of trading.

4) The people who would really suffer would be day traders - because there would no longer be such a thing as a day trader. If you were a sole trader then you would need to monitor your investments 24/7, or risk waking up in the morning to find one of your stocks had plummeted overnight.

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I disagree with no4. Just because you can't sell a stock doesn't mean the price hasn't plummeted. If you buy Japanese stock on Friday, Japan suffers a massive natural disaster on Saturday, regardless of whether you have to wait till monday or sell straight away, the value has still plummeted. This is the reason why most day traders will close their positions at the end of the day or week. –  Joe.E Jun 13 '11 at 14:46
    
with regard to 1) like I said on another person's answer, stocks are generally monitored 24/7 anyway, and in rare events, the prices in the future market would already reflect the changed value before the trading day even starts. It sounds a bit unbelievable that stock exchanges which trade billions of dollars per day, from participants all around the world, will only open 6 hours a day to minimize maintenance costs. Can you imagine a casino doing that? –  Joe.E Jun 13 '11 at 14:57
    
The futures market can change overnight, but you don't have to be in the futures market. –  DJClayworth Feb 28 '12 at 14:22
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Simply, most of the above given 'answers' are mere 'justifications' for a practice that has become anachronistic. It did make sense once in the past, but not any more. Computers and networks can run non-stop 24/7; even though the same human beings cannot be expected to work 24/7, we have invented the beautiful concept of multiple shifts; banks may be closed during nights and weekends, but banking is never closed in the internet era; ...The answer must lie in the vested interests of a few stakeholder groups - or - it could just be our difficult to change habits.

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So with 24 hours working you need to triple the staff - who pays for that extra cost? –  Neuromancer Feb 2 at 14:43
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protected by Chris W. Rea Feb 2 at 1:14

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