What is an ‘Overnight Position’?
An overnight position refers to a trade that remains open and is held overnight. In the foreign exchange market, trades are typically conducted on a 24-hour basis, and positions that are not closed by the end of the trading day are rolled over to the next day.
When a trader holds a position overnight, they are subject to overnight interest or swap rates, which can be either positive or negative, depending on the direction of the trade and the prevailing interest rates of the currencies being traded. This overnight holding can affect the overall profitability of the trade and needs to be carefully considered by forex traders.
Example of an ‘Overnight Position’
Let’s say a trader buys 100,000 EUR/USD at 1.1200 on Monday but decides not to sell it before the market closes, they will have an overnight position.
This can expose the trader to overnight risk, such as changes in exchange rates due to economic news or events that occur while the market is closed.