It’s been a busy few months over at 26 Degrees HQ in Sydney. The prime services provider recently rolled out extended hours trading for US equities, has continued to build up a strong offering for hedge funds, and has onboarded several customers for its Pairs Trading product.
We spoke to James Alexander, the company’s Chief Commercial Officer, about extended hours trading, more advanced tools for managing flow, and what brokers can do to make their products as attractive as possible for end clients.
26 Degrees launched extended hours equities trading a couple of months ago. How is it going so far? It seems to make sense as a product most for Asia, so is that reflected in activity you’ve seen?
Very well. As part of the transition, we migrated our entire client base over to the Cboe One data feed which offers US Equities trading for 16 hours per day. I think it’s fair to say the biggest beneficiaries of the extension to US Equities trading will be those traders based in the Asian time zone. Given the proportion of US companies that release results prior to the close of the regular US trading session, access to liquidity at this time is becoming increasingly necessary.
There is another interesting nuance to the demand for extended hours US Equities trading and it comes from those entities that are regularly warehousing or internalising risk in US Equity CFDs.
Having a venue into which they can hedge exposures over the more volatile post market sessions has proven invaluable in better managing risk and has been a significant driver of volumes. So, while demand from traders has been largely driven out of Asia, dealing desks across the world have also been taking advantage the opportunity to offload risk and it is here where we have built out sophisticated, algo based hedging solutions to cater for the larger trade sizes.
From my POV, it seems like brokers often plug in new products without really doing the work of figuring out how to get the most out of them or how to market them successfully. So how can brokers and their clients get the most out of extended hours trading in US equities?
This is something we’ve observed and it is a frustration. Clients will complete technical integrations, only to then miss out on the return for their efforts as the benefits case for various products are not well understood or presented by marketing and sales teams. Here are some thoughts on how brokers may choose to present extended hours US Equities trading:
- Know the audience: Retail investors are estimated to make up approximately 15% to 25% of total U.S. Equity trading volumes with the median age of 35 years old. This is a key target demographic for brokers therefore providing a best-in-class US Equity CFD offering can help to attract that core customer cohort.
- Know the product: Recent research suggests between 70% and 95%* of listed firms are reporting results in the pre- or post-market phases, with the post-market increasingly favoured. This is crucial as it means much of the volatility we’re seeing in Equities is taking place outside of the regular session. For traders looking to take advantage of the volatility or dealing desks looking to cover risk, these announcements represent material opportunities.
- Know the benefits case: If brokers are looking to offer extended hours US Equities trading to attract new clients, making sure potential clients understand the benefits of the offering is crucial. The key fact that Asian based clients can now trade US Equity CFDs during the day with minimal currency risk (compared to regular Equity trading) holds significant appeal for clients who may want exposure to Tesla, Palantir and NVIDIA but not necessarily the US Dollar.
Can you say anything about how 26 Degrees makes a price for these products? I have heard there can be lower liquidity after hours, for example? Does that cause any problems?
We utilise the Cboe One data feed for pricing, which combines pricing from all four Cboe U.S. equities exchanges, BZX, BYX, EDGX and EDGA. This offers our broker clients a unified view of the market and with that, enhanced liquidity and price discovery for US Equities.
When it comes to data delivery and market access, we prefer regulated exchanges over less regulated trading venues (known in the US as Alternative Trading Systems or ATSs). Exchanges have a much higher degree of regulation and requirements around resiliency than ATSs and in our segment of the industry, where brokers rely on us (often exclusively) for timely and reliable delivery of market data, resiliency is crucial. That’s not to say the ATSs don’t have a role to play in supplementing liquidity from the regulated exchanges – they do and I believe this role will only grow but, in our view, brokers should just be wary of relying on ATS price sources in isolation.
While lower levels of liquidity can generally be expected during pre- and post-market sessions, the impact of this is greater in those stocks with less liquidity and smaller market capitalisation generally, and for stocks outside of the major indices in the US. Over time as more and more regulated exchanges that offer extended hours come online (24X and NASDAQ for example), that liquidity differential between pre- / post-market hours and the regular cash session will compress significantly and we’re expecting progress there late 2025 into early 2026.
On a different note, 26 Degrees has made this push into the smaller hedge fund space. How is that progressing and do those companies offer a different set of challenges to retail brokers?
It’s progressing well, especially in Asia where the appeal of our independent Capital Introduction Program is in the highest demand among smaller managers seeking new capital to grow. Being headquartered in Asia provides us a natural advantage in being able to introduce allocators of capital to Asia based managers that may not be as visible to our peers based in the US or Europe.
At a high level, many of the challenges are similar (albeit with a slightly different asset class focus). Hedge funds will generally have more of a focus on exchange traded products with brokers preferring the flexibility of OTC markets. Ultimately every client is unique and has their own focus, so we take a bespoke approach with each. For example, with Hedge Fund managers we take a flexible approach to portfolio margining and will generally focus on ease of order placement, often utilising algos for larger orders or portfolio rebalances.
It seems like over the last few years, more sophisticated hedging / client segmentation tools that brokers can use have come to market. Do you see that at all and does it change how you work with brokers?
Absolutely, we’ve seen a noticeable uptick in the sophistication of tools brokers are using to manage risk and segment their client base. This has certainly influenced how we work with them, particularly in how we structure liquidity and support their differing flow profiles.
At 26 Degrees, we’ve responded by building highly configurable infrastructure and workflows to align with these evolving needs. For example, we now support multi-API configurations that enable brokers to access different liquidity pools depending on client type or execution / hedging strategy. This allows for greater control and precision in execution, especially for brokers who want to offer a differentiated experience to various client segments.
Whether it’s by region, risk appetite, or trading volume, for those brokers with their own Prime Broker relationships, we support give-up arrangements, offering flexibility to trade utilising 26 Degrees liquidity and pricing expertise while consolidating exposures on a real-time or EOD basis.
Finally, we’ve built bespoke pricing solutions for brokers who want to control their own price construction. This includes the ability to separate hedging and client-facing feeds, which is critical for brokers looking to optimise risk management and pricing strategies in real time.
As a follow up to that, obviously you are not going to accept some flow but do you think you’re in a better position overall to deal with that sharper flow than brokers are themselves?
Generally yes. Part of the benefit of our position in the industry is scale and with scale, comes certain risk mitigating characteristics for different flow types. The other aspect we benefit from is geographic diversification. Across our three trading servers in New York, London and Tokyo, we do face into a wide array of flow types and trading styles. This diversification assists greatly when we are looking to net risk in a centralised risk warehouse. As such we’re generally open to accepting a wide range of flow types. For sharper or more sophisticated flow, such as from highly correlated client cohorts, we’ve built dedicated workflows to manage the demands on liquidity in a way that mitigates potential for undue market impact. For example, we maintain separate liquidity pools specifically engineered with fewer LPs with larger quote quantities to absorb short bursts of order flow.
Ultimately, our role as a Prime of Prime is to sit between the broker and the broader market and that means having the right price controls, routing logic, and liquidity segmentation to handle a diverse range of client flow profiles. For brokers, trying to manage this internally can be both operationally and financially burdensome, so partnering with someone like 26 Degrees allows them to confidently cater to a broader range of end clients without taking on disproportionate risk.
