Overnight Positions in Forex

What is an overnight position?

These are open positions in the Forex market which are not closed at the end of the trading day in which they were opened. In the stock market an overnight position is considered at risk because it is common, for as long as the exchange is closed (after the trading session), that some events may occur which can negatively impact the price of the stock traded.

In the Forex market, which is an international financial market that operates continuously 24 hours, it has been set the 17:00 EST (00:00 UTC) as the final hour of the trading day. At this time, any position that is still open is considered an overnight position. This hour is strict. If you open a position at 23:59:59 UTC and close this same position at 00:00:01 UTC, it will be considered an overnight position.

Overnight positions are subject to rollover. At the end of the trading day, ie at 00:00 UTC, the interest generated by each overnight position will be deducted or credited to the trading account. This interest is the difference between the interest rates of each currency in the pair in which is based overnight position. This difference in interest rates is called rollover and can be both in favor of the trader (interest is deducted from the account) and against the trader (interest is credited to the account ).

The rollover is the basis of the carry trade and is calculated as the difference between the interest rate of the currency we are buying and the interest rate of the currency we are selling (interest rate on the purchased currency – interest rate of the currency sold). This difference is credited or deducted from the account of the trader automatically at 00:00 UTC.

Example of an overnight position

A trader has a short position in the currency pair USD/CAD which means that he is selling the U.S. dollar and buying the Canadian dollar. The trader keeps this position open after 00:00 UTC. For this reason, it is an overnight position. If the interest rate of the Canadian dollar is 3% and the interest rate of the U.S. dollar is 2.5%, the rollver will be 0.5%. Therefore, the trader will receive in his account 0.5% of the size of the position.



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