What is a 'Overnight Position'

Overnight positions are trading positions that are not closed by the end of the trading day. These trades are held overnight for trading the following day. For forex trading, overnight positions expose the traders to risk from adverse movements happening when trading closes for the night. 

Overnight positions represent all open long and short positions that a forex trader possesses as of 5:00 pm EST, which is the end of the forex trading day. Overnight trading refers to trades that are placed after an exchange’s close and before its open. Overnight trading hours can vary based on the type of exchange in which an investor seeks to transact. Alternative markets may include foreign exchange trading and cryptocurrencies. Each market has standards for overnight trading that must be considered by investors when placing trades during off-market hours.

BREAKING DOWN 'Overnight Position'

There are benefits and drawbacks to holding an overnight position. In forex trades, 5 pm EST is considered the end of the trading day, although the market is technically are open 24 hours a day five days a week since it is global. Because a new trading day begins after 5 pm, positions opened at 4:59 pm EST and closed at 5:01 pm EST are considered overnight positions. The overlap of trading hours between exchanges in North America, Australia, Asia and European markets makes it possible for a trader to execute a foreign exchange trade through a broker-dealer at any time.

The payment of rollover interest rate on overnight positions may affect the trading account as either a credit or a debit. In forex, a rollover means that a position extends at the end of the trading day without settling. For traders, most trades roll over on a daily basis until they close out or settle. The majority of these rolls will happen in the tom nex market. Meaning they are due to settle tomorrow and extend to the following day. If a trader entered into a position on Monday at 4:59 pm EST and closes it on the same Monday at 5:03 pm EST, this will still be considered to an overnight holding. The holding was past 5:00 pm EST and is subject to rollover interest.

Determining Whether to Maintain an Overnight Position

Deciding whether or not to maintain an overnight position will involve many factors. Forex traders will generally take risk and risk management, capital cost, leverage changes, and strategy into account when deciding to maintain an overnight position. The overall goal of keeping an overall position is to try to increase profit return on the trade by holding it overnight or by minimizing the loss of a losing daytime trade. 

Some stock investors believe that maintaining an overnight position is a beneficial strategy, while others think purchasing or selling stocks shortly before closing time is a more profitable move. Those who believe taking an overnight position is effective often hold their positions 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 aspects of the previous day’s market have cleared the account.

It is rare that an overnight position can transform a daytime loss into a profit and additionally, there is a risk with keeping an open position overnight. Primarily, the market can shift dramatically overnight, with the arrival of catastrophe news or other events which can affect the markets. This risk is why many investors have a strict daytime trading-only policy. Also, a consideration of borrowing costs may play into any decision. Technically, an overnight position requires broker leverage to maintain the position.

Most companies report their financial results when markets are closed, to enable all investors to receive the information at the same time. They usually make significant announcements after market hours, rather than in the middle of the trading day.


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