Overnight Position: Definition, Risks and Benefits in Trading (2024)

What Is an Overnight Position?

Overnight positions are open trades that have not been closed or liquidated by the end of the normal trading day.

Overnight positions are not held by day traders but are quite common in foreign exchange and futures markets. Long-term investors naturally hold overnight positions on an ongoing basis.

Key Takeaways

  • Overnight positions are those that have not been closed out by the end of a trading day.
  • Overnight positions can expose an investor to the risk that new events may occur while the markets are closed.
  • Day traders typically try to avoid holding overnight positions.
  • In the FX SPOT markets, overnight positions are subject to rollover interest charges that are debited from or credited to the client's account.

Understanding Overnight Positions

Simply put, 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. Overnight positions expose the traders to risk fromadverse movements that occur after normal trading closes.

This risk can be mitigated to varying degrees, depending on the markets traded. For example, in the currency market, or spot market, any contingent orders, such as stop-loss and limit orders, can be attached to the open position.

In the currency markets, overnight positions represent all open long and short positions that a forex trader possesses as of 5:00 p.m. EST, which isthe end of theforextrading 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.

Special Considerations

There are benefits and drawbacks to holding an overnight position. In the forex market, 5 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 a week.

Because a new trading day begins after 5 p.m., positions opened as late as 4:59 p.m. EST and closed as early as 5:01 p.m. EST are still considered to be 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 rollover interest rate on overnight positions affects the trading account as either a credit or a debit.In forex, a rollover means that a positionextends at the end of the trading day without settling. Most forex trades roll over daily until they close out or settle. The rollovers are conducted using either spot-next or tom-next transactions.

If atraderentered into a position on Monday at 4:59 p.m. EST and closes it on the same Monday at 5:03 p.m. EST, this will still be considered an overnight position, since the position was held past 5:00 p.m. EST, and is subject to rolloverinterest.

Maintaining an Overnight Position

Forex traders will generally take the risk, cost of capital, leverage changes, and strategy into account when deciding to maintain an overnight position. The goal of keeping an overnight position is to try to increase profit 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 in keeping an overnight position 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.

A day traderoften closes all trades before the end of the tradingday, so as not to holdopen positionsovernight.


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 catastrophic news or other events that can affect the markets.

This risk is why many investors have a strict daytime trading-only policy. Borrowing costs may occur as an overnightposition 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. Significant announcements may be made after market hours, rather than in the middle of the trading day and can affect overnight positions.

Overnight Position: Definition, Risks and Benefits in Trading (2024)

FAQs

Overnight Position: Definition, Risks and Benefits in Trading? ›

Understanding Overnight Positions

What are the disadvantages of overnight trading? ›

Cons. Liquidity Risk: Overnight markets may have less liquidity, leading to larger bid-ask spreads. Volatility Risk: Lower liquidity often results in higher price volatility, potentially causing substantial losses.

What is an overnight position in the stock market? ›

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 on which an investor seeks to conduct trades. Overnight trading is an extension of after-hours trading (also known as extended-hours trading).

What happens if you hold an option overnight? ›

Holding an Overnight Position comes with several risks. These include gap risk, where a significant difference between the closing price of one trading day and the opening price of the next can occur. Also, unpredictable market conditions due to after-hours news or events can impact the value of the held position.

What can affect the outcome of the trade if you hold a position overnight? ›

These risks include: Gap Risk: The risk that the opening price the next day will not be the same as the closing price the day before. This is often due to news or events that occur while the market is closed and can result in substantial losses (or gains) for traders holding overnight positions.

Is night trading illegal? ›

Night trading was made legal by the Securities and Exchange Commission (SEC) in 1999 with extended hours for trading stocks.

What is overnight trading called? ›

Extended-hours trading (or electronic trading hours, ETH) is stock trading that happens either before or after the trading day regular trading hours (RTH) of a stock exchange, i.e., pre-market trading or after-hours trading.

How does overnight trading work? ›

Overnight Trading Hours for US stocks and ETFs are from 8:00 pm ET to 3:50 am ET, with the first session beginning on Sunday at 8:00 pm ET and the last session ending on Friday at 3:50 am ET. Trades executed between 8:00 pm ET and 12:00 am ET will carry a trade date of the following trade day.

Can I hold sell position overnight? ›

A futures contract can be shorted and can be carried or held overnight, unlike short selling in the equity segment, where the position must be squared off on the same day. To place a sell order for futures contract, MIS (for intraday) or NRML (for overnight) product type can be used to place a sell order.

Why do stocks move overnight? ›

A stock will spike after hours when there's significant news released that affects how the market values the stock. Most big after-hours stock price movement is the result of a company releasing its quarterly earnings results.

Why don t day traders hold overnight? ›

Generally, it's very risky to hold day trades overnight. Even with a losing trade, it's usually better to close out and start fresh with new trades the next day. Several factors can affect a stock overnight, meaning that the risk of significant loss is as high as the chance of a big gain.

Why not to hold stocks overnight? ›

The reasons not to hold day trades overnight include: You put yourself into a great risk of market opening gap. Your stop loss order cannot protect you from that gap. Your broker will charge you an extra fee for leaving an open trade overnight.

Can I buy overnight option and sell same day? ›

Yes you can sell any overnight position. Do remember that when you hold for overnight, unless there is a drastic price change, decay may impact your option prices.

Does an overnight trade count as a day trade? ›

Positions held overnight ≠ Day Trade

If you hold a position overnight and close it the next day, and then open the same position that same day, then that is not considered a day trade unless you close it again that day.

How much does it cost to hold a trade overnight? ›

Overnight fees apply if a trading position is kept open outside of the exchange's normal opening hours. How does the overnight fee work? A trader that holds a long position in a contract for difference (CFD), and typically pays the admin fee of around 2-3% plus the central bank's overnight rate.

What happens if you hold margin overnight? ›

If you are a pattern day trader and you sell positions you opened during the same day, you will not incur a margin liquidation violation. However, if you hold the position overnight, your account could be in a Fed and exchange call.

Why you shouldn't trade at night? ›

Overnight positions are those that have not been closed out by the end of a trading day. Overnight positions can expose an investor to the risk that new events may occur while the markets are closed. Day traders typically try to avoid holding overnight positions.

Why is it risky to trade after hours? ›

Liquidity risk: Not only are you limited to the ECN your broker uses, there are fewer market participants in after-hours sessions. As a result, there's limited liquidity for most stocks. That creates wider bid-ask spreads and an increased risk that your order won't get executed.

Why is it bad to trade after hours? ›

Low Liquidity/High Volatility

After-hours trading involves low volume trading. That means that investors may find it difficult (even impossible) to buy and sell stocks. In the event you are able to transact, low liquidity often results in volatile prices due to lack of available trades.

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