Charles Schwab's 24/5 Trading: A Game Changer or a Gamble?

Charles Schwab has just rolled out 24/5 trading, a move that could revolutionize the retail trading landscape or lead to a wild west of market chaos. As Nate Geraci, President of ETF Store, put it, "You may not like it, but tradfi slowly moving towards defi hrs. Full securities tokenization the longer-term end state." Let's dive into the implications, benefits, and risks of this bold step.

The New Normal: 24/7 Markets

With the rise of cryptocurrencies and decentralized finance (DeFi), the concept of 24/7 markets has become increasingly prevalent. Charles Schwab's 24/5 trading is a significant step towards bridging the gap between traditional finance (TradFi) and DeFi. This move allows retail investors to trade a wider range of securities, including companies in the S&P 500, Nasdaq-100, and hundreds of ETFs, at any time Monday through Friday.

Benefits for Retail Investors

1. Increased Flexibility: 24/5 trading enables investors to react to global market developments in real-time, as news events and earnings announcements often happen outside of regular market hours.
2. Access to Global Markets: Schwab's 24/5 trading hours align with Asian and European market hours, enabling investors to trade US markets during their business day. This is particularly beneficial for Schwab's international clients who want to invest in US companies.
3. Putting Lessons into Practice: Schwab has noticed that people tend to read trader education content in the evening. With 24/5 trading, investors can quickly put what they learn into practice in their accounts.

Risks and Challenges

1. Lower Liquidity and Volatility: Markets may behave differently after hours, with less activity and less news flow. This can result in lower liquidity and heightened volatility outside of regular market hours. Investors should expect wider spreads and potentially fewer trading opportunities.
2. Overtrading: Overnight trading can be helpful for those who can't trade during regular hours, but it also presents the risk of overtrading. Investors may place more trades or riskier trades than they should, especially when they are tired. Having a trading plan and sticking to it can help manage this risk.
3. Market Manipulation: Extended-hours trading can potentially be manipulated by large institutional investors, as there is less liquidity and fewer participants during these sessions. Retail investors should be aware of this risk and consider using limit orders to protect their trades.

The Competitive Landscape

Charles Schwab's move sets a new standard for retail trading hours, putting pressure on competitors to match or exceed this offering. Firms that fail to provide similar access may lose clients who seek the convenience and flexibility of 24/5 trading. Competitors may respond by matching or exceeding trading hours, differentiating their services with unique features or educational resources tailored to 24/5 trading, or forming partnerships and collaborations to enhance their offerings.

In conclusion, Charles Schwab's 24/5 trading is a significant development that could reshape the retail trading landscape. While it offers increased flexibility and access to global markets, investors must be aware of the potential risks and challenges. As the competitive landscape evolves, retail brokerage firms will need to respond strategically to maintain their market position and attract clients in this evolving environment.