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With Globex continuing to trade even after the cash markets close, what is the real need for closing your day trades before the RTH close?
Hypothetical scenario: Suppose you've taken a trade in a TR that formed in the last hour, and even with a wide stop, you're caught because the market has gone against you and you can't get out before the cash market closes at 4pm ET. But is there really any need to panic?
Is margin the consideration? What if you have enough in the account for overnight maintenance margin?
Is the lack of liquidity the concern? Not if you're trading a small account and your only goal is to get out break-even at some point overnight.
So what is the real concern?
Hi PB,
Some concerns I can think of are:
- Margin
- News
A trader may have plenty of margin. But how many times can they handle taking the big losses from overnight positions gone wrong before account finally runs dry? There is no guarantee that if caught on the wrong side, the market must come back to BE or give profit the next day. If a trader has strong belief in their trade with a wide stop and they're willing to hold for so long then maybe they're actually trading a higher timeframe in their mind instead of the daytrade?
Then imagine placing a day trade, walking away to sleep, news comes and the market changes against you for many hours until the morning. Overnight traders will probably use the wide stop, but in real life, if news happens and you see the market changed against you I think most traders will just exit early since the premise is no longer valid and no need for wide stop to get hit. Unfortunately in the cash market you're locked out, and in the futures market you're sleeping so either way a big loss for no reason.
Basically, the concern is lack of control due to sudden market events that change the premise of the trade. For HTF traders like on the daily or weekly charts maybe it's less of a concern, but for those who initiated their position as daytrade it's an issue. Also don't forget that most earnings announcements and other economic news are usually released pre and post market hours (at least in the U.S.).
One situation I'm aware of when Al holds overnight is if the previous day closes with a buy or sell climax. There's a very high probability of some FT on the open, usually due to a gap. So Al uses options after the close to bet on a gap and exits it the next day on the open. One idea for regular cash trades is to hedge them with options in the opposite direction for overnight. You pay a little extra insurance for the safety of the trade while you're away.
Hope that helped!
CH
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BPA Telegram Chat is seeking options traders to advise them when to hold losses overnight.
