Should you hold positions overnight in foreign exchange trading?
Day traders typically buy and sell stocks, currencies or futures only during the entire trading session of the day. Typically, these trades sell before the market closes. So holding positions overnight requires careful consideration.
What should I consider before taking an overnight position?
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.
Traders typically want to hold trades overnight, either to increase profits or in the hope that losing trades can be reduced or turned profitable the next day.
Successful day traders have clear boundaries about when to trade, when to take profits, and when to lose. These boundaries typically include using stop-loss orders, moving stops, and taking profits.
If, at the end of the trading session, orders for some of these trades are not closed, manual position squaring. Holding trades overnight introduces additional risk and adds new variables that were most likely not taken into account when the order was originally placed.
Accept losses at the close
Losses should not be held overnight. If you have a sound risk management approach, then any active compensation is acceptable. So there is no reason to bet on whether the next day's trade will turn profitable.
Holding on to losing orders after the close can be a gamble because once the market closes, new risks are introduced.
Lock in profits at the close
It is also a gamble to seek extra profits by holding positions overnight. After market time, things change (or some markets become untradable), and while gains may increase, they may also turn into losses. Lock in profits and re-trade the next day.
More profits can be made on new positions tomorrow, so hoping to make more money is usually not a sufficient reason to take the risk of holding a position overnight.
Traders may also be tempted to hold if they expect a big move the next day. For example, a company revealing its earnings overnight will cause prices to jump or fall the next day. While there is a lot of profit potential here, there is also a lot of risk if traders end up on the wrong side.
Unless you are forced to continue holding trades because trading has stopped or there is a lack of liquidity, there is little good reason to hold overnight trades.
Alternatively, only swing trades (those lasting a few days to a few months) should be held overnight. These trades should be planned before the order is placed, not after the order has been placed.
Factors and risks of overnight trading
The foreign exchange market trades 24 hours a day, so the risk of holding an overnight position is even greater, and it is very likely that a major news will appear at midnight, which will blow up your position. (Popular Articles: How to Identify Trends in the Foreign Exchange Market?）
There are a few more.Forex brokerThe leverage will be significantly reduced over the weekend, which is also to avoid serious losses due to unexpected events.
In fact, the profit margin of day trading may be higher, so as to maximize the use of your principal.
Summary of overnight positions
If you are a day trader, follow the day's trading plan. Unless you plan to hold for the long term, open and close positions during active market hours.
If you change your trading plan at will after placing an order, can't bear to position squaring due to losses, and then have unrealistic fantasies waiting for the market to reverse, then you are not trading, but gambling.
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Disclaimer: The content of this article does not represent the views of the Institute of Foreign Exchange. The content is for reference only and does not constitute investment advice. Investors operate accordingly at their own risk.