Lessons from the Pros


Beware of Markets With Suspended Trading Hours

This weekend I was reflecting back on my trading history and some of the many changes I have seen in the Futures markets. August 2013 marked 26 years of Futures trading for me. The memories of how the markets were traded in the past only made me realize how important it is to always be a student of the markets and never feel like I know it all. As a trader I feel like I have done my best to keep up with all the changes in the markets while still keeping an open mind that there are still plenty of changes to come.

One of the changes that all traders are still dealing with is the almost 24 hour markets we now have.  Back in the 80’s we had paper charts to update once per day.  The prices we updated every day were simply the entire day’s range.  There were no intra-day charts available.  Some Floor Traders used point & figure charts to help track some of the intra-day moves, but for off the floor traders we primarily used daily charts.  This day’s range was also just the open outcry session because there was no Globex electronic trading overnight.  Once the trading pits closed there was no trading until the next morning.  For us Treasury market traders this was very nice because for years the Treasury markets were only open for 6 hours per day.  This meant that any institution or commercial entity that had to hedge their portfolios only had 6 hours to get it done.  This meant the entire trading day was very actively traded especially the morning opens and afternoon closes.  All this business had to be conducted in a very short time frame.

Today we have almost 24 hour markets in most of the Financial Futures.  Now the sense of urgency to get your orders filled has been relieved slightly due to these longer trading hours.

But along with these longer trading hours we also have intra-day charts with a host of multiple timeframes that we can do our market analysis on.  Another benefit of trading on our paper charts was that the majority of market participants were all looking at the same daily timeframe charts.  Therefore if there was a supply/demand level on a daily chart you can bet it was well respected.  Today with so many different timeframes to look at the challenge becomes finding optimal timeframes to trade.  The king of all timeframes, in my opinion remains the daily chart.

Another issue we have to deal with in these 24 hour Futures markets is that some of them have suspended trading hours during the trading session.  These suspended trading hours are different from the two sessions each day – Open Outcry and Electronic trading.  We know that the Electronic sessions run both pre and post the Open Outcry sessions in many of the markets.  This excludes the Inter-Continental Exchange (ICE) where all of their trading is done Electronically and there are no Open Outcry sessions.

The suspended sessions I am referring to occur in the Stock Indexes (traded on the CMEGroup Exchange) and the Grain markets.

We will start with the Grain markets first and describe these hours.  The primary Grain markets are:

  • Corn
  • Soybeans
  • Soybean Oil
  • Soybean Meal
  • Wheat

These are the oldest Futures markets that trade on the CMEGroup Exchange.  For many years the trading was all done in the trading pits through on Open Outcry auction process.  The trading hours were 10:30 ET (Eastern Time)  to 14:15 ET.  Once the trading pits closed at 14:15 there was no more trading done in the United States for the Grain markets.  This created a lot of gaps when the market opened the next morning because the markets had been closed for so long.  Another event that happened more back then was if a market closed limit up or down (maximum price change from previous day’s close) there was always a possibility that the next day would open limit up or down also.  The Electronic trading has taken some of that price pressure off the markets now and rarely do we have markets opening limit up or down proceeding a limit move day.  I’m not saying it cannot happen, it just happens very infrequently now.

The most liquid time of day to trade these markets (highest volume time of day) are still during the Open Outcry session even though you would trade the Grain markets on the Electronic platform.

Here are the hours that the Grain markets now trade:

  • Sunday evening at 20:00 ET the Electronic Grain markets begin trading
  • Each morning at 8:45 ET the Electronic trading is suspended
  • At 9:30 ET the Electronic trading resumes and the Open Outcry session starts
  • Both Electronic and Open Outcry sessions will stop trading at 14:15 ET

The Grain markets trade Sunday evening until Friday afternoon with these hours.

Notice at 8:45 ET the Grain markets suspend trading for 45 minutes before they resume again.  Not long ago this was done because the United States Department of Agriculture (USDA) would release a very significant report once a month during this suspended trading period.  The report requires Commercial traders to analyze the numbers before making trading/hedging decisions, this takes more time than a Financial report.  This particular Supply/Demand Crop report has multiple numbers to analyze including the bushels per acre number.  Since the majority of the market volume was not trading when this report came out the Exchange felt it was to the investors best interest to have the report released while the market was suspended.

There was almost always a large gap up or down when the market would resume trading after these reports because nobody could react to the report until trading started again.  Therefore a huge imbalance of buy or sell orders would hit the Grain markets once trading resumed.

At one point the CMEGroup convinced the USDA to release this report while the Open Outcry session was open hoping to have more liquidity available and to reduce the volatility.  The USDA obliged the CMEGroup and changed the release time of the report.  Once the report release time was changed the CMEGroup discontinued the suspended trading hours. This major Supply/Demand Crop report is now released once a month at 12:00 ET.

Soon after this change many of the CMEGroup’s Commercial and Large Traders complained that releasing the report during trading hours does not give them time to analyze the numbers.  Finally the CMEGroup changed the trading hours again to accommodate their clients and reinstituted the suspended trading time early in the mornings.  However, the USDA is reluctant to change their report release time now and they are insisting the report will remain at 12:00 ET.  My feelings are that the lobbyist of the CMEGroup Exchange (and they are large) will win this battle and force the USDA to get in line with the CMEGroup and release the report in the morning again, time will tell.

The other market sector that has suspended trading time during the session are the Stock Indexes that trade on the CMEGroup Exchange.  This would include the ES, YM & NQ.

Since these symbols are for the Electronic trading because they do not have an Open Outcry session, the most liquid time of the trading session is during the Open Outcry times when the full size S&P, DOW and Nasdaq trade.

When Electronic trading first started in the Stock Indexes the Floor Traders would not allow Electronic trading simultaneously while the Open Outcry session was open.  The Floor Traders felt this to be a threat to their profits because they are market makers.  So the Electronic trading only ran after the Open Outcry session closed up to an hour before it opened again the next day.

Soon Electronic trading was allowed to run during the Open Outcry session as well as at night.  We soon had almost 24 hour trading.  The hours were recently changed and now they have a suspended trading session in the afternoons that traders should be aware of.

Here are the hours the Stock Indexes on the CMEGroup trade:

  • Sunday evening the Electronic trading starts at 18:00 ET
  • Monday morning at 9:30 ET the Open Outcry session for the large contracts begin.  This is the most liquid time of the day to trade Stock Indexes
  • At 16:15 ET the Open Outcry ends the trading session and the official settlement price for the day is calculated on where the price is at this time
  • During this same time of 16:15 ET the Electronic trading suspends trading
  • Then at 16:30 ET the Electronic trading resumes trading and prices are still part of the day’s range
  • When 17:15 ET arrives the Electronic trading will stop.  This is the last trade price of the day, but the official settlement price seen on the Daily chart is still the settlement price from 16:15 ET.
  • At 18:00 ET the official open starts the new trading session

These markets trade from Sunday night through Friday afternoon, there is no trading on Saturday.

These are the only two Futures sectors that have these suspended trading hours.  All others are continuous trading hours from open to close.  I wanted to point these out to you because it is always possible that you might have a position on and your data will stop coming in on your charts.  Instead of being in a panic you will now know that this is simply a suspended trading session.  The Stock Indexes have the least impact of suspended trading.  When the Grains resume trading there is often a gap even if there is no report released.  Be careful day trading Grains pre market due to this potential gap against your position.

“If we’re growing, we’re always going to be out of our comfort zone”  John Maxwell

– Don Dawson

DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.