Overnight Position Definition
What is a night shift?
Overnight positions are open trades that have not been closed or liquidated at the end of the normal trading day.
Overnight positions are not held by day traders but are quite common in the forex and futures markets. Long-term investors naturally hold overnight positions on an ongoing basis.
Key points to remember
- Overnight positions are those that have not been closed at the end of a trading day.
- Overnight positions can expose an investor to the risk of new events occurring while the markets are closed.
- Day traders generally try to avoid holding positions overnight.
- In FX SPOT markets, overnight positions are subject to rollover interest charges which are debited or credited to the client’s account.
Understanding night shifts
Simply put, overnight positions are trading positions that are not closed at the end of the trading day. These transactions take place overnight to be negotiated the next day. Overnight positions expose traders to the risk of adverse moves that occur after the normal close of trades.
This risk can be mitigated to varying degrees, depending on the markets traded. For example, in the currency market or the spot market, all contingent orders, such as stop-loss and limit orders, can be attached to the open position.
In forex markets, overnight positions represent all open long and short positions that a forex trader has at 5:00 PM EST, which is the end of the forex trading day.
Overnight trading refers to trades that are placed after an exchange closes and before it opens. Night trading hours may vary depending on the type of exchange an investor is seeking to trade.
Alternative markets can include foreign exchange trading and cryptocurrencies. Each market has standards for overnight trading which should be considered by investors when trading outside of market hours.
Special Considerations
There are advantages and disadvantages to occupying a position at night. In the forex market, 5:00 p.m. EST is considered the end of the trading day, although with the advent of technology and the global nature of this arena, this market is open 24 hours a day, five days. per week.
Since a new trading day starts after 5:00 p.m., positions opened until 4:59 p.m. EST and closed until 5:01 p.m. EST are still considered overnight positions. Overlapping trading hours between exchanges in North America, Australia, Asia and European markets allows a trader to execute a foreign exchange trade through a broker at any time.
The rollover interest rate on overnight positions affects the trading account as a credit or a debit. In forex, a rollover means that a position extends at the end of the trading day without stabilizing. Most forex trades roll over daily until they close or settle. Rollovers are made using spot-next or tom-next trades.
If a trader took a position on Monday at 4:59 PM EST and closed the same Monday at 5:03 PM EST, this will still be considered an overnight position, since the position was held after 5:00 PM EST, and is subject to rollover interest.
Maintain a Night Position
Forex traders typically consider risk, cost of capital, changes in leverage, and strategy when deciding to hold a position overnight. The objective of holding a position overnight is to try to increase the profit on the trade by holding it overnight or minimizing the loss from a losing day trade.
Some stock investors believe that holding a position overnight is a beneficial strategy, while others believe that buying or selling stocks shortly before closing time is a more profitable decision. Those who believe in holding a position overnight often hold their positions overnight and then sell or trade them as close to the opening bell as possible in the morning.
By trading early, stocks and traders are fresh, and any potential negatives in the previous day’s market have cleared the account.
It is rare that an overnight position can turn a daytime loss into a profit and, in addition, there is a risk in keeping a position open overnight. Primarily, the market can change drastically overnight, with the arrival of catastrophic news or other events that can affect the markets.
This risk is why many investors have a strict day-only trading policy. Borrowing costs may arise because an overnight position requires leverage from the broker to maintain the position.
Most companies publish their financial results when the markets are closed, so that all investors can receive the information at the same time. Important announcements may be made after market hours rather than in the middle of the trading day and may affect positions overnight.
