Are you are a trader getting into forex for the first time? Then, you will likely already know that time runs a little different here compared to your average stock market. While stocks open and close within an eight-hour window, forex is open 24 hours a day, five days a week.
For many traders, that can mean looking carefully at overnight trading, rather than joining the day trader masses. Crucially, it’s worth remembering that as forex has such a broad a window, you’re going to need to be precise about when you’re ‘open for business.’
Before you start considering an overnight approach to forex, you must ensure you’re ready for the potential risks that come your way. What’s more, there are plenty of perks to doing your homework. You might be able to line up a healthy Forextime bonus. For example, should you decide what broker is best for you. In any case, you should certainly make use of LeapRate’s other guides and resources to help you along.
For now, here are a few tips to keep in mind if overnight forex trading is already on your radar.
Tips To Be Successful With Overnight Forex Trading
#1: Don’t deal in absolutes
If you have any experience at all in trading – in any shape or form – then you probably know that keeping an open mind is vital to long-term success. You cannot invest via forex emotionally, or impulsively if you aim to make money.
In addition, the very nature of the overnight model, forex-wise, means that there may be big movements that occur while you are asleep. The 24-hour model means that, unless you are completely wired on caffeine and dare to stay up across the whole 24 hours, you could miss some key action.
Never deal in forex and leave overnight unless you accept the risks. The fact is, doing so can be a little bit of a gamble.
#2: Save overnight trading as a backup if you can
To avoid shorting and to avoid any major changes to your portfolio overnight, only use the night model as an absolute reserve. Some traders choose night mode in addition to day trading; however, this is a high-risk maneuver that will only pay off for you if you have the capital available. What’s more, you really need to know what you’re doing.
That isn’t to say overnight trading isn’t worth getting into. In fact, it’s a fantastic way to bolster your day trades if you have the knowledge and resources to carry you through. If you don’t, then we advise you not to go into overnight mode unless you have a fair amount of experience backing you up.
#3: Carefully pick your pairings
You also need to keep in mind the time zone differences between the currencies you place into a pairing. If you choose USD/GBP, for example, one currency could see big changes during the day and another overnight. If you can carefully pair your currencies close together in terms of time zone, you could have a shorter period in which to worry about your investments.
However, this is by no means a guaranteed assertion. Many traders choose pairings based on other factors first – pairing up on time zones isn’t necessarily going to net you big movements or income in the long run. Therefore, while it is very important to try and play safe, you should consider other indicators and factors first.
It’s another way in which the stock market moves very differently to forex – your scope is much wider here.
#4: Carry and reduce
A sound piece of advice worth remembering if you are trading both in the day and overnight is to cut down your investments before the night begins. This, mathematically, means you will have less to lose while you sleep. However, the best part is that you won’t miss out on any spikes or surges that you’d avoid completely if you played it 100% safe.
We think this is also a fantastic way to ensure that you have a clearer idea of how your investments perform over the gap. You could cut your investments before the overnight trade for a short period and keep track of the results. If some firm correlations start to appear, you can then start thinking about increasing your overnight investments. You’ll also be able to make more confident decisions in the day.
#5: Consider the spreads
By and large, you will find that platforms handling forex will increase the spreads (buy to sell) overnight. This is a matter of keeping the balance due to transactions thinning out. Therefore, it’s worth remembering that overnight forex is a very different beast from what you are accustomed to during the day.
If you don’t already know about spread in forex, perhaps you should first acquire some knowledge in that aspect. You will need it to make the most out of either day or overnight trading.
That’s it about tips to be successful with overnight forex trading. As demand is lower due to inherent risk, you may find that your portfolio performs wildly differently after sundown. That said, we’d never suggest a trading newbie plunge headfirst into overnight forex, so the best thing to do will always be to transfer from day tonight.
You must be prepared, however, because it’s a different world. Yes, you could stand to make big gains, but these are just as likely as big losses. So, as with all walks of forex, keep an open mind.
Is Overnight Forex Worth It?
In some cases, yes. Overnight forex can absolutely be worth the time, money, and risk. However, many seasoned traders will prefer to close off at the end of the working day and pick up again the day after. This can lead to disappointment if there have been some large gains overnight, but the odds are not always going to be in your favor.
A good place to start may be to analyze the markets carefully overnight, or across a 24-hour model, for multiple weeks. Start to build your own averages and correlations in line with your own attitude to risk, and your financial / investment goals.
Overnight forex could make or break your portfolio – so tread carefully before you keep things open after the sun goes down.
