Overnight option trading. DEFINITION of 'Overnight Trading'. The buying or selling of currencies between 9pm and 8am local time. This type of transaction occurs when an investor takes a position at the end of the trading day in a foreign market that will be open while the local market is closed. The trade will be executed sometime that evening or.

Overnight option trading

The Best Stock For Overnight Positions

Overnight option trading. Early on in my trading career, when I kept a position in a trade overnight it was like drinking 20 espressos just before bed. I would wake up in cold sweats, get up several times a night to check the quote screen or spend the night staring at the clock until the opening bell. That is, until I learned to recognize a.

Overnight option trading

You're a day trader or considering it , buying and selling stocks, currencies or futures throughout the trading session. Typically all your trades are closed before your respective market closes, but you're debating whether to hold a position overnight. Therefore, if holding a trade overnight, consider the reason for doing it. If the reason is not sound, then close the position before the market closes.

Typically traders want to hold trades overnight either to increase their profit, or they hope a losing trade will be reduced or turn into a profit the following day. Successful day traders have clearly defined boundaries about when they trade, and when they will take profits and losses. Often these boundaries include the use of stop loss orders, trailing stops and profit targets.

If one of these orders, which closes a trade, is not reached by the end of the trading session the position is manually closed. Holding a trade overnight presents additional risk and introduces new variables which likely weren't taken into consideration when the trade was originally placed.

As for losing day trades, they should not be held overnight. And holding a day trade after-hours can be a gamble, because once the market closes new risks are introduced risks vary by market, with some presenting more risk than others. If seeking additional profit on a day trade by holding overnight, this too is a gamble. Conditions change or trading is unavailable in some markets after market hours, and while the gain could increase, it could also turn into a loss.

Lock in the profit and trade afresh the next day. Day traders may also be tempted to hold a day trade if they expect a big move the next day. Forex is a seamless hour market, with the exception of being credited or debited interest rate differentials at 5 PM EST.

Therefore, holding an overnight position in this market isn't a huge deal. Though, volume and volatility are lower for many pairs outside of the European and US sessions. Stocks carry significant risks when holding overnight. Not only is leverage reduced and interest charged on leverage, but the trader is also left exposed to potentially large price gaps which can result in way larger losses or profits than expected.

There are maintenance periods following regular market hours which may expose the trader to small price gaps. Futures trade around the clock, but volume is typically much lower outside normal business hours. Day trades should be left as day trades. This helps avoid the common problem of holding onto a losing trade for longer in the hopes that it will return to profitability, or gambling on whether a market will jump or dump overnight.

Whether day trading or holding positions overnight, be aware of high-impact news events which could render a stop loss ineffective. Updated February 07, The risk of a significant gap is compounded if there is overnight news that will impact the stock — the price difference between the prior day and the next day can be substantial.

Even if you place a stop loss order, it may not protect you. A gap could also work in a trader's favor, creating a much larger gain than expected. In the forex market: The forex market trades hours a day. Price gaps may occur when major economic data is released.

It's recommended day traders close all trades which could be impacted by a scheduled high-impact economic data release , whether holding overnight or not. This is called rollover. Typically this is a tiny amount: Holding the position after hours after 5 PM may result in a tiny rise or fall in your equity balance. Most currency pairs have much higher volume and more movement when European and US markets are open.

Volume and volatility typically drop off when these markets are closed. Day traders are better off trading during the active times, and closing positions before the quiet times quiet and active times vary by currency pair. That said, there is always a major global market open for business somewhere on the globe, which allows for seamless hour trading.

Therefore, holding an overnight position is not a major concern in the forex market. It can be difficult to trade in such conditions unless the trader has a strategy specifically designed for this type of low-volume environment. In the futures market: The futures market is a like hybrid of the stock and forex markets. Day trading margin--how much the broker requires a trader have in their account to day trade a futures contract--is typically significantly less than what is required if holding overnight.

Check with your broker for what their Initial margin requirements are. Initial margin is typically five to ten times higher than day trading margin. Outside of normal trading hours, volume typically declines significantly.

The futures contract may still have bids and offers around the clock during the week, not on weekends , but there are fewer participants which means there is little movement, or the market could make large random movements based on the actions of a small group of traders or a few large orders.

While most futures contracts trade hours a day, there may be price gaps if economic data is released or significant news comes out.

Price gaps can be substantial when there is little liquidity outside of normal market hours.


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