Perils and pitfalls of CFD trading overnight?

I’m finding that I don’t have the time for intra-day trading, given my shift work, and think that I might achieve greater consistency and efficiency if I could have open trade(s) over a number of days, perhaps weeks.

Is anyone trading CFDs overnight, or are they solely an intra-day trading thing?

If trading CFDs overnight(s) can be viable, what are the disadvantages?

The technical analysis you do off daily charts is probably going to be a lot more reliable than following charts at time-frames under 4 hours.

Widened spreads are an issue overnight. They can be pushed out so far that stop-losses or entry orders are triggered not due to any underlying actual price movement but simply by the broker managing their risk exposure. Allow plenty of pips between current price and your order. But don’t be tempted to not set a stop-loss.

Good idea any form of trading good experience to begin with. Starting with demo or minimal account

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Thanks for your reply.
Yes, I prefer the longer time-frame daily charts. I’m not familiar with the broker closing out my positions for their risk management purposes, as I’m yet to try to make that leap into long-term CFD trading, because it sounds like it’s not really the done thing. I guess I’ll have to research the mathematics about that, and learn more about that when it happens.
I’m not sure what you mean by allowing plenty of pips between the current price and my order. When you say my ‘order’, do you mean my entry price? I expect my methodology would be to enter at market price.
Yes, I’m never tempted to not set a stop-loss.

Hi AlvinP -

Its a constant surprise to traders new to longer term trading how wide spreads can go when both the London and New York stock markets are closed. Although forex trading continues the volume is much lower and there is potential for dramatic price changes, though rare.

Entering a long position is done at the ask price, entering a short position is done at the bid price. The ask price is always higher than the bid and the difference between the two is the spread. Its like a retail situation - if you want to buy a shirt you will have to pay the shop the ask price: but they didn’t get that shirt at that same price, they paid less so they could put it in their window and sell it at a profit - they paid the bid price.

Let’s say for example that the spread from your broker on EUR/USD during the London/New York business hours is 1 pip. The only way to know what happens to their spread after NY closes is to watch the quotes. The spread is not visible on most charts: most charts are drawn from the bid price only. It would not be unusual to see the spread go from 1 pip to 10 or 15 or 20 pips “overnight”.

And the spread varies during this time to so it might spike out from 10 pips to 20 pips just for a few seconds. But that few seconds is enough for the broker’s system to execute any order that now falls within the spread. It could be an entry order or it could be a stop-loss order.

Its very easy to find you have had a buy order triggered overnight when price appears on the chart to have fallen all night. That’s because although the bid price did fall, the ask price was pushed higher by the broker, and the chart doesn’t show this. Same with stops: its very annoying to have a position closed because the stop-loss was close to the bid/ask range and then find that price continued to move in your position’s favour - if only it had been still live!!! Grrrr!

Stay up late a few times and watch quotes v’s charts.

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Trading CFDs overnight might seem tempting but there are risks that you should know about:

  1. Overnight financing costs: When trading CFDs, you are essentially borrowing the underlying asset from your CFD trading platform. As a result, you will be charged an overnight financing cost (also known as the swap rate) for holding your position. This cost can accumulate over time and can nibble away at your profits or add to your losses over time.

  2. Gaps and price jumps: Markets can experience significant price gaps or jumps overnight due to events like earnings announcements, economic data releases, or unexpected news. This can lead to a sudden and significant change in the value of your CFD positions, potentially causing significant losses.

  3. Leverage and margin calls: CFDs are leveraged financial instruments, which means that you can control large positions with a small amount of capital. While this can amplify gains, it can also amplify losses. If your positions go against you overnight, you may face a margin call, requiring you to deposit more funds to maintain your positions or risk having them liquidated. This means coughing up more cash to keep your positions alive or watching them vanish into thin air.

  4. Reduced market liquidity: Overnight trading typically has lower liquidity than intraday trading hours, which can lead to wider bid-ask spreads and increased price volatility. This means wider bid-ask spreads and more price volatility, making it harder to get in and out of positions at the price you want and could negatively impact your trading results.

  5. Emotional stress and sleep deprivation: Staying up all night to monitor and trade CFD positions can take a toll on your physical and emotional well-being. A lack of sleep can make you cranky, impair your judgment, and leave you more prone to trading losses.

To avoid falling into these overnight CFD trading traps, consider these tips:

  • Use proper position sizing to keep potential losses limited.
  • Keep an eye on those \overnight financing costs and make sure they’re factored into your trading plan.
  • Stay in the know about news and events that could rock your positions while you snooze.
  • Don’t go overboard with leverage, and make sure you’ve got enough free margin to handle any overnight market volatility.
  • Don’t forget to catch some Zs and take care of yourself. A well-rested trader is a better trader, after all!

Yes so true , the broker may credit you shorting on say commodities, then a high percentage are short and the commodity is now ranging after a peak,the broker will then charge you astronomical overnight fees on the short .

Same with adjustment fees on indices it can change from 0:8 to 30 in same circumstances,eating away at any potential profits

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