Overnight and weekend holding in forex prop trading can be a profitable strategy, but it can also come with its own set of risks.
In this blog post, we will explore the risks associated with overnight and weekend holding in prop trading:
Market gaps occur when the price of a currency pair opens significantly higher or lower than its previous closing price. These gaps can catch traders off guard.
Over weekends, geopolitical events, unexpected news or low liquidity can lead to substantial gaps. Liquidity tends to be lower during non-trading hours, especially over weekends. Fewer participants mean wider spreads and potentially higher transaction costs.
You may face slippage and execution issues.
Margin calls occur when a trader’s account equity falls below the required margin level. Holding leveraged positions overnight increases the risk of margin calls.
If a trade moves against you, losses can accumulate rapidly. In other words, if your position moves unfavorably while it’s held overnight, you might encounter increased margin requirements. This situation could result in a margin call or liquidation of your position, if you’re unable to fulfill the new margin requirements.
In conclusion, while overnight and weekend holding in forex trading can be a profitable strategy, it also comes with its own set of risks.
Forex prop traders who decide to hold positions overnight or over the weekend should be aware of these risks and take steps to mitigate them.