How are Trading Days Decided?
The term trading day, or regular trading hours (RTH), refers to the length of time that stock exchanges and trade markets are open.
This is the time where investors decide what to do with their shares, capital owners decide where to pour their resources in, and businesses look for acquisitions, mergers, and trade deals.
In the United States, the New York Stock Exchange (NYSE) sets the number of trading days and the start and end times of each day. Most other stock and trade markets align their schedules and activities according to the NYSE.
Another prominent stock exchange market is the NASDAQ. Both of these platforms try to say in line with each other, and there is rarely a fluctuation between the two of them.
If you’re new to forex trading, considering understanding how candlesticks chart work before investing.
How Many Trading Days in a Year?
The average number of trading days in a calendar year hovers around 252 days out of 365. In some years, the number may be off by one day, particularly in the case of leap years.
Notably, the year 2020 has 253 trading days. February has the least number of trading days with 19, a number that can increase depending on a leap year and the position of weekends.
October has the most number of trading days with 23, and the average number of trading days across each month is around 21 or 63 per fiscal quarter. Workdays typically run from Monday to Friday unless there are special circumstances which will be discussed later. The NYSE has trading days that start from 9:30 pm and close at 4:00 pm Eastern Time.
Share trading is typically frozen until the following day. However, there are some specific windows of time where eager and savvy traders can continue to engage in the market. The before-hours trading starts as early as 8:30 am and closes at 9:15 am in preparation for the regular trading hours, while the after-hours trading can stretch up to 6:00 pm.
These pockets of time give some investors, capital owners, and stockbrokers a crucial leg up compared to the competition because they can leverage up-to-date stock information and market changes that are presented outside of regular trading hours. It also allows them to better prepare for the following day and create contingencies for unforeseen circumstances.
When is The Market Closed?
To answer this question, a variety of factors need to be considered.
1. The Number of Weekends
Firstly, the NYSE is closed on all weekends, irrespective of the month. This is because historically, severe stock market crashes happened on the weekends.
Money managers also need a break in between cycles so that the overall market is liquid enough for optimal trading. While the advent of online technology has negated this problem to a large extent, the general trend of individuals taking a timeout during the weekends to recuperate losses or strategize the next move has remained.
2. The Number of Holidays
Another big factor is the number of holidays in a calendar year and how it relates to the position of weekends in a month. If a holiday falls on a weekend, then the markets are closed on the following or preceding weekday, depending on whether the holiday falls on Saturday or Sunday.
This is done to prevent the effect of a holiday being negated and to allow traders a chance to spend quality time with their family. The holidays where stock markets in 2020 are fully closed are:
- Wednesday, January 1 — New Year’s Day
- Monday, January 20 — Martin Luther King Jr. Day
- Monday, February 17 — Presidents’ Day
- Friday, April 10 — Good Friday
- Monday, May 25 — Memorial Day
- Friday, July 3 — Observance of July 4, Independence Day, which falls on a Saturday
- Monday, September 7 — Labor Day
- Thursday, November 26 — Thanksgiving Day
- Friday, December 25 — Christmas Day
There are also some holidays where markets close at 1:00 pm. These are called half-days and occur during Christmas eve and Thanksgiving.
3. Other Miscellaneous Factors
Trading day closures also depend on the element of uncertainty. For example, most stock markets close during the funeral of a US President – as it did with Ronald Reagan and George H.W. Bush.
Catastrophic weather events like Hurricane Sandy and Katrina can also force stock markets to close in solidarity and to help the disaffected recover quickly.
Major occurrences like terrorist attacks, stock market crashes, or governmental shutdowns can also force markets to close as state apparatuses scramble to mitigate the damage and come up with a solution.
In conclusion, you can reliably calculate the number of trading days in a year with the following formula: Number of days in a year – Number of Weekends – Number of Holidays – Number of Half-Days.
Some Characteristics of Trading Days
Beyond knowing the number of trading days, you should also keep an eye on market trends. For example, October is generally considered the most volatile month for trading, while January sees share prices consistently rise due to increased optimism on a New Year.
Some days are also riskier to trade than others. The first and last days of each month are subject to the most volatility as it is uncertain how a month will financially pan out.
Similarly, Fed Days and Earnings Announcements Days also generate more volatility than others. Conversely, Good Friday has historically seen higher share prices and market activity.
If you are looking to be a foreign investor or deal with foreign firms, knowledge of their trading days is also important as their holidays differ from ours due to local traditions.
Even Canada observes Thanksgiving on a different day, which means even if US markets are closed, Canadian markets can remain open.
All in all, knowing when to push for that lucrative new deal or to hold out to ride the waves of a potential loss is deeply rooted in knowledge about the number of trading days and their unique characteristics.
With this article, we hope you are more informed about your financial decisions.