Explain Extensively: Should You Hold a Day Trading Position Overnight?

Oct 03, 2022 By Susan Kelly


Some investors are concerned about a market reversal that may cause them to lose a lot of money if they don't close the order before the trading day finishes, while others don't give a hoot. Profits should be waited on before cutting losses. If the remaining order follows the pattern the following day, that will be excellent. It would be tragic, though, if the order were lost or your account terminated the next day. Many short- and long-term traders are therefore suspicious of overnight positions. Because of this uncertainty, some investors favour day trading, which is considered less dangerous, but it is also simple to fail due to the high volume of trades involved.

Should You Hold a Day Trading Position Overnight?

During the trading day, day traders will buy and sell various financial instruments. In most cases, these transactions end before the market closes. The decision to stay put tonight should not be made lightly. Most traders like to keep their trades open over the night to either increase their profit or turn a loss into a profit. While it's seldom a good idea to leave a day trading position open overnight, there are circumstances where doing so can make sense. Those interested in finding out more should keep reading.

What Is an Overnight Position?

Unliquidated trades open at the end of the regular trading day are known as "overnight positions." Unlike in the futures and currency markets, where overnight positions are common, day traders rarely hold positions overnight. Those who invest for the long haul typically keep overnight positions open.

What Is A Day Trade?

Trading on the same day you open and close your position is called "day trading." Day traders cannot profit from long-term market trends because they must close all open positions before closing. As a result, day traders need access to high levels of leverage, ample trading liquidity, and the ability to make numerous daily trades to generate substantial annual returns. Even though day trading takes place during the day, there are situations in which some traders would rather maintain their overnight positions.

Successful day traders limit their time spent trading and when they will cash out their gains or take losses. These are common examples of such constraints: stop-loss orders, trailing stops, and profit targets. When the end of the trading day comes, and one of these orders to close a trade has not been executed, the position is closed by hand.

Risks of Overnight Stock Trades

When deciding whether or not to hold a position overnight in a given market, think about these factors.

Leverage Requirements Change for Overnight Trading

Most US brokers offer 4-to-1 leverage for day trades but only 2-to-1 for overnight positions. When holding overnight, you lose access to capital and may find yourself short, to begin with.

Borrowing Costs

There will be borrowing fees if you hold on to leverage overnight. When you use the leverage from your broker, you are borrowing money to fund your investment. No matter what happens to the opening price, you are still responsible for paying the full amount.

Less Liquidity After the Closing Bell

There is typically no trading activity in stocks and ETFs until the market opens for the day (pre-market). This makes the investor vulnerable to the market's capriciousness regarding where it will open the following day. The following day it could start trading significantly lower or higher. That's a pretty big mystery.

Overnight News Can Impact the Stock

Price swings from one day to the next are possible due to events such as the release of important economic data, natural disasters, or the passing of a key executive. It's possible that a stop-loss order won't help if you place one. Stop-loss orders are filled at the current market price, which may be significantly lower than the target price.

Sometimes Gaps Work for You

A trader might also benefit from a gap if they use it strategically. If that happens, the result would be a much bigger profit than anyone anticipated. But the possibility of a negative price gap is too great to ignore.


For day traders, the small benefits of holding positions overnight are typically outweighed by the substantial drawbacks. There is no guarantee of a positive outcome, and you take unnecessary risks. Turnarounds in the market are more likely to occur as the trading day winds down than rallies. One word keeps coming up in trading theory reading: "mindset." You need the right mentality if you want to be a long-term trader, and that includes being able to stomach closing a losing trade at the end of the day. Although it goes against human nature to do so, you can take a loss in stride and return to trading the following day. Don't try to become a swing trader if you're a day trader. Get out of unprofitable trades before the session ends and rest easy in anticipation of tomorrow's potential gains.

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