What Is an Overnight Position? Should You Hold a Day Trading Position Overnight?

Day traders generally only buy and sell stocks, currencies or futures during the entire trading session of the day. Typically, these trades would be completed before the market closes. Therefore, holding positions overnight requires your careful consideration. Today, we'll discuss more about overnight positions in BrokersView.  

What Is an Overnight Position?

Overnight positions are open trades that have not been closed by the end of the normal trading day and are fairly common in the forex and futures markets. These trades are carried out overnight and traded the next day. Overnight positions expose traders to the risk of adverse movements after the normal trading day closes. Long-term investors tend to hold overnight positions on an ongoing basis while day traders usually don’t to hold overnight positions.

What to Consider Before Holding a Position Overnight?

Each market (stocks, forex, futures) has different factors to consider. Risk and risk management must be addressed, as well as the cost of holding positions, changes in leverage, and reasons for holding positions overnight.

Generally, traders want to hold trades overnight, either to increase profits or in the hope that losing trades will reduce or turn profitable the next day.

Successful day traders have clear ideas about when to trade, when to profit, and when to lose. These ideas typically include making stop orders, trailing stops, and take profits.

If some orders are not closed at the end of the trading session, the positions are closed manually. Holding a position overnight introduces additional risk and adds new variables that were likely not taken into account when the order was originally placed.

Hold a Position Overnight or Not?

Some people tend to worry about a market reversal and lose a large amount of money if they don't close the order before a trading day ends while there are also people who don't care too much about the orders. It is better to wait for profits to stop their losses.

It would be ideal if the remaining order is still in the same direction as the general trend the next day. But if the order is already a loss or your account has stopped out the next day directly, it will be a tragedy. Therefore, many traders are wary of taking overnight positions no matter they are short-term or long-term enthusiasts.

For currency traders, the time difference between internal and external trading will increase the risk of holding positions overnight; at the same time, some unexpected risk events or unexpected results of heavy data that may occur overnight may also prevent traders from holding positions overnight.

Let's take EURUSD as an example. If you hold an EURUSD overnight long order, and it happens that the international market (with a time difference from the domestic market) releases some important data in the middle of the night, causing the DOLLAR to rise, your EURUSD is likely to appear at a loss when the market opens the next day.

Because of this possibility of risk, some traders prefer to engage in day trading, thinking it is safer, but it is also easy to fail due to frequent trading. There are also some trend traders with unstable mentality or immature trading system easily turn to short-term day trading, or close their positions early, only to catch a small profit and therefore miss the big market profit completely.

How to Control the Risk of Holding a Position Overnight?

If you decide to hold a position overnight, you must learn to control the risk of overnight orders. In real trading, holding a position overnight needs methods and skills. In general, it is best to meet the following five conditions to hold a position overnight:

1. Positions are profitable. If your position has floated to fifty or sixty points profits, then a slight drop of more than ten points in the morning won't make much difference.

2. The general trend is good. This is very important! For example, it is obviously a short market, but you hold a long order overnight, and it is clearly a long market, but you hold a short order overnight, this is very likely to be a dead end.

3. Set a stop loss. Always place protective stop-loss orders on positions to limit losses.

4. The quantity and price should be matched. In other words, your deal price and volume must match each other, and at the same time remain strong in the evening session.

5. Don't hold all positions overnight. When you hold overnight positions, you must avoid holding all positions overnight and need to follow various essentials of money management during transactions. After all, the market is unpredictable and no one knows when it will change.

It is not easy to make money by speculating in forex. For investors, it is necessary to master the key points and skills in time to ensure the success rate and profit probability.