24-Hour Trading Is Coming. Not Every ETF Is Ready

The Illusion of 24-Hour Liquidity

Investors often assume that if markets trade longer hours, liquidity will naturally follow.

In reality, ETF liquidity depends less on trading hours and more on hedgeability.

As trading windows expand through extended sessions and overnight venues, the mechanics that normally keep ETF markets efficient begin to change.

The Rise of Overnight Trading

Overnight trading in U.S. securities is no longer theoretical.

Venues such as Blue Ocean already allow trading in U.S. stocks and ETFs during overnight hours, primarily serving global investors who want exposure to U.S. markets outside traditional trading sessions.

Exchanges are also exploring longer trading windows as global demand for access to U.S. securities continues to grow.

Early Conviction from Market Makers

Years ago, when Blue Ocean was first developing its overnight trading venue, I had several conversations with the team about the potential role ETFs could play in extended trading hours.

At the time I was actively market making ETFs, and we discussed which types of funds might be the most appropriate to test first and how liquidity providers could approach market making in sessions where some underlying markets might be closed.

I was supportive of the concept early on and even volunteered to participate as one of the first ETF market makers if the venue launched successfully.

ETFs Have Evolved into Trading Instruments

The idea of ETFs trading across time zones made sense, particularly for products tied to global exposures.

Today ETFs are used far more frequently for tactical exposure, hedging, and macro positioning.

In some cases ETFs are now used as frequently as futures or other derivative instruments to gain targeted market exposure.

Why Some ETFs Are Naturally Global

In many ways ETFs are well suited for this environment.

Products such as the SPY or QQQ already function as global instruments, frequently used by investors around the world to express views on U.S. equity markets.

Other ETFs tied to global exposures may be even more natural candidates for extended trading, such as EEM or GLD, which already respond to developments outside U.S. trading hours.

Liquidity Follows Time Zones

In some cases ETFs that are only moderately liquid during U.S. trading hours could become significantly more active overnight depending on the underlying exposure.

A similar dynamic can already be observed with U.S.-domiciled ETFs that hold European equities. When underlying markets are open, spreads are tight. When they close, hedging becomes harder and spreads widen.

The same ETF can therefore exhibit very different trading characteristics depending on which markets are open.

Thematic ETFs: Not All Are Equal

Thematic ETFs can show similar behavior.

Some may become less liquid overnight if their holdings trade primarily in the U.S. Others, like REMX, may become more relevant during Asian trading hours due to underlying exposure.

This again reinforces the central point: ETF liquidity follows hedgeability.

When ETFs Behave Like Futures

Some ETFs have reached a scale where they function more like global trading instruments than traditional investment products.

Take EFA as an example.

With large AUM and broad international exposure, it is widely used for expressing global equity views and can act as a proxy instrument when underlying markets are closed.

Not Every ETF Should Trade 24 Hours

But not every ETF naturally fits a 24-hour structure.

Some products lack the global demand or underlying liquidity needed to support continuous trading. In those cases, extended hours may create more optical liquidity than real liquidity.

Buffer ETFs and certain structured products illustrate this tradeoff.

The Challenge of Leveraged and Complex ETFs

Some ETF structures would face even greater challenges in a 24-hour environment.

Single-stock leveraged ETFs and broader leveraged strategies rely heavily on derivatives and hedging instruments. When those are not trading, risk increases and spreads widen significantly.

Small-cap ETFs may also face similar constraints due to reduced hedgeability.

The Hidden Constraint: Human Capital

This highlights one of the most overlooked constraints in extended trading hours: human capital.

Market making is not purely electronic. Traders must monitor risk, manage inventory, and oversee pricing. Extending trading hours requires extending operational resources across the ecosystem.

A More Global ETF Ecosystem

Authorized participants and issuer capital markets teams may also see increased engagement outside traditional hours.

As ETFs become more global, liquidity events and investor demand will increasingly originate across multiple time zones, requiring broader coverage and expertise.

The Need for Guardrails

As the industry explores longer trading sessions, it should do so thoughtfully.

Guardrails may be necessary, whether through liquidity thresholds, demonstrated demand, or committed liquidity providers. Not every ETF needs to trade overnight.

The Bottom Line: Hedgeability Drives Liquidity

The ETFs most likely to succeed in extended trading environments will be those with global demand, strong underlying liquidity, and effective hedging mechanisms.

Overnight ETF trading is not limited by technology. The real constraint is capital, risk management, and operational commitment.

Markets may eventually trade around the clock.

But liquidity will always follow hedgeability.

Disclaimer

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.