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Overnight exposure

Positions held through the close, when you cannot react and the next price you see may be far from the last.

Holding overnight changes the risk profile of a trade, not just its duration. Between the close and the open there is no continuous market, so your stop-order cannot protect you - it becomes a market order at whatever price trading resumes.

Size accordingly. A common approach is a separate, smaller limit for overnight risk than for intraday: for example 1% per trade intraday but 0.5% held overnight, and a hard cap on total overnight notional-exposure. Day traders who flatten at the close pay spread to eliminate this entire category of risk, which is often a fair price.

The exposure is worst around scheduled catalysts. Holding through earnings-reports, an fomc statement or a weekend means accepting a distribution with fat tails and no exit, so the position should be sized as though the stop does not exist.

Related: overnight-exposure-limit

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