End-of-day trading: what is it and how does it work?

What is end-of-day trading?

End-of-day (EOD) trading is an order made to execute a position by the time markets close. It involves trading a stock or another security that can be actively traded during a specified period. That trading period depends on the type of security and the market in which it trades.

You can place several types of EOD orders, which can either be a buy or a sell order. They can be market orders, limit orders or stop orders. Unlike good-'til-cancelled (GTC) orders, EOD trades typically execute by the close of markets and don't carry on into the next trading session.

A limit order specifies the price at which you’re willing to buy or sell a security, regardless of the time, while market orders are the best available price for a security at the time of execution. Stop orders are instructions to your broker to enter or exit a trade if the market price rises or falls to a specified level to mitigate possible losses.

For example, imagine you want to trade shares in a company with a market price of $30. You can place an EOD limit order with a price target of $34. You can also place an EOD stop at $28 to mitigate substantial losses. If the stock's price doesn't hit its limit or stop prices by the end of the day, the trade will execute at its closing price.

What time does end-of-day trading start?

EOD trading doesn’t start at any particular time, but you need to be aware of the trading hours of the market that you want exposure to. For example, the stock market operates at different times to forex and commodities markets. Plus, these markets operate at different hours depending on time zones.

Forex markets and commodities markets are typically open 24 hours a day on weekdays, making EOD orders more complex.

The following are trading times for the Australian market:

• Australian stock market hours: 10am to 4pm AEST
• Australian forex market hours: 6am Monday to 7am Saturday AEST
• Australian commodities market hours: 8am Monday to 7am Saturday AEST

These are other popular times for trading shares in other countries:

• New York Stock Exchange (NYSE): 9.30am to 4pm ET (11.30pm to 6am AEST)
• Frankfurt Stock Exchange (XFRA): 9am to 5.30pm CEST (5pm to 1.30am AEST)
• Shanghai Stock Exchange (SSE): 9.30am to 11.30am and 1pm to 3pm (11.30am to 1.30pm and 3pm to 5pm AEST)
• Tokyo Stock Exchange (XJPX): 9am to 11.30am and 12.30pm to 3pm JST (10am to 12.30pm and 1.30pm to 4pm AEST)

What are the benefits of end-of-day trading?

More accurate analysis

EOD trading involves taking a view of the entire trading day to establish patterns in an asset's price movement. This can give a trader more information about the asset (as opposed to day trading) based on short-term support and resistance levels.

Better risk management

Because EOD orders typically involve limit or stop orders, your risk is likely to be reduced to your own boundaries.

More flexibility

EOD orders can be used to enter or exit positions at specific prices, which can provide more flexibility in trading strategies. For example, you can use limit orders to buy or sell at specific prices, or you can use market orders to execute trades at the best available price.

Lower transaction costs

Because EOD trading typically only involves one order, it has fewer transactions than a regular day trading strategy. This could cut back on commission fees and act as a more cost-efficient alternative.

Less time commitment

An EOD strategy enable you to pick stocks based on a predetermined price or its price at the end of the day, which gives you more trading flexibility in a limited timeframe.

What are the risks of end-of-day trading?

Missed flexibility

You may find yourself restricted in reacting to market changes during the day. When significant news breaks or prices move dramatically, day traders can adjust their positions immediately while you'll be bound by your pre-set orders, potentially missing profitable opportunities.

Market uncertainty

You'll need to make trading decisions with incomplete information about how the day will unfold. While your technical analysis guides these choices, unexpected news or market volatility can significantly impact your positions before the closing bell.

Time decay risk

When you hold positions until market close, price movements need to be more substantial to generate meaningful profits, as your position is exposed to market fluctuations for a longer period compared to intraday trading.

End-of-day liquidity challenges

You'll find trading volumes typically decrease near market close, which can lead to wider bid-ask spreads and more difficult order execution. This reduced liquidity may force you to accept less favourable prices when closing positions.

How to get started with end-of-day trading

You can start using the end-of-day trading strategy with a share trading or CFD trading account.

• Share trading enables you to buy or sell company shares outright. As an owner of shares, you’re entitled to certain rights, like the right to receive dividends, if paid.
• CFD trading is a means of trading assets on a leveraged basis. When trading using CFDs, you’ll enter a contract to exchange the difference in price from the point at which the contract is opened to when it is closed.

Trading with CFDs comes with added risk attached to leverage. Your position will be opened at a fraction of the value of the total position size – but you can gain or lose money much faster than you might expect.

It's also good to keep in mind that past performance is not an indicator of future returns.

Here's how to create a CFD trading account with us:

1. Create a trading plan
2. Choose your preferred market and identify your opportunity
3. Create an account or practise on a demo account
4. Set your trade size and manage your risk
5. Close your position or attach a stop-loss to automate your exit

End-of-day trading summed up

• An end-of-day (EOD) order involves taking a position on a market that will close by the end of the trading day
• EOD trading usually involves placing stops and limit orders that expire at the end of the day unless filled
• The time for EOD trading depends on the market you want exposure to
• EOD orders are popular because they require less time commitment and remove the market noise that occurs in intra-day trading
• EOD trading may result in missing out on price changes based on news that affects an asset's price