Overnight Position


What is a night position?

Overnight positions refer to open trades that have not been closed at the end of the normal trading day, which are quite common in the foreign exchange and futures markets.

Key points to remember

  • Overnight positions refer to open trades that have not been closed at the end of the normal trading day, which are quite common in the foreign exchange and futures markets.
  • Night positions are risky, but this risk can be mitigated to varying degrees through the use of conditional orders, such as stop loss and limit orders, which can be attached to the open position.
  • On the FX SPOT markets, day-to-day positions are subject to rolling interest charges which are debited or credited to the client’s account.

Understanding the night positions

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 movements occurring after normal closing of trades. This risk can be mitigated to varying degrees, depending on the markets traded. For example, in the currency market (SPOT), all contingent orders, such as stop loss and limit orders, can be attached to the open position.

On the currency markets, overnight positions represent all the long and short open positions that a forex trader has at 5:00 p.m. IS, which is the end of the forex trading day. Night trading refers to transactions that are placed after the close of a stock exchange and before it opens. Night trading hours may vary depending on the type of exchange in which an investor seeks to trade. Alternative markets can include currency trading and cryptocurrencies. Each market has day-to-day trading standards that must be taken into account by investors when placing transactions during off-market hours.

There are advantages and disadvantages of keeping a position overnight. 5:00 p.m. EST on the foreign exchange market is technically considered the end of the trading day, although nowadays, with the advent of technology and the global nature of this arena, this market is open 24 hours a day, five days a week. Because a new trading day begins after 5:00 p.m., the positions have been opened until 4:59 p.m. EST and closed at 5:01 p.m. ESTs are still considered overnight positions. The overlapping of trading hours between stock exchanges in North America, Australia, Asia and the European markets allows an operator to carry out a foreign exchange transaction at any time via a broker.

There is a cost for this convenience, which is called the rollover interest rate. This rate on overnight positions affects the trading account like a credit or debit. In forex, a rollover means that a position extends to the end of the trading day without settling. For traders, most trades are renewed daily until their close or settlement. Rollovers are carried out using spot-next or tom-next transactions. If a trader has taken position on Monday at 4:59 p.m. EST and closes on the same Monday at 5:03 p.m. EST, this will still be considered a night position as the position was held after 5:00 p.m. IS, and is subject to rolling interest.

Determine whether to maintain a night position

The decision to maintain a night position or not generally involves many factors. Forex traders will generally take risk, cost of capital, leverage changes and strategy into account when deciding to hold a position overnight. The overall objective of keeping a position overnight is to try to increase the profit on the trade by keeping it overnight or by minimizing the loss of a losing day trade.

Some equity investors believe that maintaining a day-to-day position 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 maintaining a day-to-day position often hold their position overnight, 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 negative from the previous day’s market has wiped out the account.

It is rare that an overnight position can turn a day loss into profit, and there is also a risk of keeping an open position overnight. Above all, the market can change dramatically overnight, with the arrival of catastrophic news or other events that can affect the markets. This risk is the reason why many investors have a strict day-only trading policy. In addition, consideration of borrowing costs can play a role in any decision. Technically, an overnight position requires leverage on the broker to maintain the position.

Most companies report their financial results when the markets are closed, to allow all investors to receive the information at the same time. They usually make large announcements after market hours, rather than in the middle of the day, as this can affect day-to-day positions, sometimes dramatically.

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