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Where Did the Prices Go?

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March 15, 2013
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Online Trading Academy Article of the Week

by Don Dawson, Online Trading Academy

Futures trading predominantly took place during the day time hours in an open outcry fashion for many years. Then in 1997 electronic trading started becoming moneywithwingspopular and has slowly been taking the volume away from the Futures trading pits in Chicago and New York alike. Electronic trading allows for markets to be open for almost 24 hours because the trading is done electronically and does not require the manpower to keep open for long periods of time. Reducing manpower also cuts operating costs and this is what the United States Futures Exchanges have had to do to be competitive with their European and Asian competition.

Along with the convenience of electronic trading have come some issues that Futures traders need to deal with on a regular basis. In this article I would like to discuss market trading hours around holidays and how the industry has chosen to plot the prices on our charts.

When trading was done primarily in the trading pits in Chicago and New York traders never had to worry about how to interpret price data on charts. For if the trading floors were closed then there was no data being transmitted. Today electronic trading allows for prices to start as early as 18:00 Eastern Time for some markets on Sunday nights. While the trading pits for that product might not open for another 15 hours. Even on holidays when the trading floors are closed the electronic trading is available for trade execution.

Remember, Futures Exchanges were created to allow speculators & hedgers to come to a central location and make their purchases and sales in a well regulated environment and allowing them as many hours as possible to conduct their business. Having the ability for international and domestic traders to place orders on our Exchanges almost 24 hours per day helps them manage their risk and this in turn creates business and revenue for the Exchanges.

I would recommend Futures traders to become familiar with the holiday schedules for the markets they are trading. We all know that on major holidays we can expect that the Exchanges will be closed. But did you know:

  1. Some markets close early on Friday before a 3 Day weekend?
  2. Electronic trading is conducted for abbreviated trading hours while the trading pits are closed?

The CMEGroup posts this message on their Holiday schedule page:

CME Group observes U.S. recognized holidays. On CME Group recognized holidays, open outcry trading and CME Globex trading observe different opening and closing times, depending on markets traded. Opening and closing times are also affected on the business days prior to or after a holiday in both open outcry and CME Globex Trading.

Here is the link to the CMEGroup holiday schedule. You will notice on this page there is a holiday schedule for the Electronic Trading (Notices) and for the Trading Floors. I would recommend that you observe the holidays for the Trading Floors. Here is why I suggest this. When the trading floors are closed there is not going to be much liquidity in the electronic markets because market participants will be on holiday. Institutional or Commercial trading desks that are open will have junior traders manning the order desk. They will be instructed not to do anything unless a particular event happens. Most of the time these junior traders are sitting on their hands because that event rarely happens when most traders are on holiday.

Now let’s look at how the Exchanges will merge these prices around holidays so our charts are not too distorted when we return to trade after the holiday.

Figure 1 will illustrate a market that was trading around a holiday here in the United States called “Presidents Day” on February 18. We will be discussing what happens in the colored boxes.

This particular market did not have an early close on Friday like some of the other markets did. In the yellow box we see an entire trading session (both the day and night session) of the mini S&P contract for Friday February 15.

Looking to the right of the yellow box we see a blue and purple box. These boxes represent the electronic trading over the holiday. Keep in mind that the trading floors were closed, but the electronic trading was open for an abbreviated session. This means the pit traded S&P contract was closed for the holiday.

The blue box represents the electronic trading opening on Sunday evening February 17 at 18:00 Eastern time. And goes until Monday February 18 at 12:00 (noon) Eastern Time at which time trading is suspended.

On Monday evening February 18 the electronic trading is resumed (Purple Box) at 18:00 Eastern Time. The market will now be open until Tuesday, February 19 at its normal close time of 17:15 Eastern Time.

With the market opening for an abbreviated session, then suspending until it is resumed later in the evening and then trading through the next day’s normal close, a trader could become confused about how the price is posted on a daily chart.

Figure 2 will illustrate a daily chart of the mini S&P contract around that holiday period.

Notice the chart package posted an entire Candle for February 15 for the last full day of trading before the holiday. This particular chart package shows a Candle gap between February 15 and 19 to represent a holiday. Then on February 19 that Candle will have the entire range from the February 17 open to the close on February 19. Regardless of which of the holiday hours made the highest high or lowest low all the data is merged into one daily Candle around holidays. No gaps will be shown from when the market was suspended on Monday afternoon and resumed on Monday evening, but the official open for the Candle will still be Sunday evenings 18:00 Eastern Time open. The official open may show a gap if there was one from Friday’s closing price to Sunday’s opening price.

The next time there is a holiday I would recommend you take some time to study the market hours that will affect your trading. This way you will not be holding a day trade over the weekend if the market you are trading is one of the few that closes early prior to a holiday.

“If we are facing in the right direction, all we have to do is keep on walking” Buddhist Proverb

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