Overnight Position

Overnight Positions is a term which is used in relation to trade on international financial, currency and commodity futures markets. A position can be defined as an exposure to the shifts in a specific market. Traders are exposed to the movement of markets when they place a buy or sell order on a specific market, i.e. they are in a position to profit from or incur losses from movements on the market or index.

If a trader holds a position overnight, it means that he/she has a trading position, long or short, which has not been closed out during the normal trading day and thus has to hold the position overnight and until the start of the new trading day. This type of trading is considered to be extremely risky as outside events can influence the market and the trader is not in a position to instantly react to these events while the market is closed. For example, a significant world event may occur overnight which means that the financial index may open the next trading day at a level which is significantly different from its closing value of the previous evening which could result in significant losses (or profits) being incurred by the trader.

This level of risk may however, may be mitigated by the trader to some extent by making use of sell orders or stop loss orders. These orders enforce the liquidation of the trading position as close as possible to a certain pre-determined price level once the markets re-open, thus potentially limiting losses which may be incurred by the trader on his/her open positions. For example, if a trader buys gold at $1,000 (with a stop loss at $900) and there is a significant ease in geopolitical tensions, which occurs whilst the market is closed, then the gold market may re-open at $850, where the trade may then be liquidated. If the market then falls further, to $700 say, then the stop loss has mitigated the trader's losses to some extent. However, it is worth noting that there is no guarantee that the stop loss can be executed at $850 and the key factor when taking up a gold overnight position is that the trader is accepting that he/she cannot effectively manage their risks and maybe be wiped out in a single night should something unexpected, yet important happen.

The risk associated with overnight positions is one of the things that speculators might often face, so they should be sure to use only a small portion of their portfolio for each trade. Long-term investors should make sure that they hold their gold and silver in the form that is safe from risk associated with holding overnight positions - like physical bullion.