Overnight Position
Candlefocus EditorIn the FX SPOT market, overnight positions are subjected to rollover interest charges. These are charges for keeping a position open overnight and are credited or debited from the client's account. Depending on the currency pair involved, the interest rate differential between the base and quote currency can influence the direction of the rollover rate. If the base currency has a higher interest rate, the trader will have a net credit from the open position. On the other hand, if the quote currency has a higher interest rate, the trader will have a net charge for the open position.
Changes in currency prices, unexpected news releases, and other unforeseeable events could potentially affect an investor’s position overnight, resulting in unexpected losses. This is the main risk associated with overnight positions and why day traders may want to avoid these types of positions. It is not possible to predict what may happen in the time period that the position is held open.
Though there exists potential risk in overnight positions, if managed correctly, they could potentially bring greater returns due to the increased period of holding. As the markets change, traders may be able to capture new trends and patterns that may have been too short for the day session.
Overall, overnight positions come with high risk and should be taken only by experienced and knowledgeable traders with a good understanding of the direction of the markets and the potential of upcoming news risk. The rollover interest charges should also be taken into consideration when considering these positions.