WikiFX report: The do’s and the don’ts for Trading during rollover

Overnight trading hours can vary based on the type of exchange in which an investor seeks to transact. Not all markets have overnight trading. Overnight trading is an extension of after-hours trading.

Extended-hours trading is stock trading that happens either before or after the trading day of a stock exchange, i.e., pre-market trading or after-hours trading. Funded Forex traders are faced with a daily dilemma regarding holding trades overnight and it is the unpredictable results of rollover.

Most of the traders don't know or have forgotten that rollover normally happen at 3pm (EST for NZ) 5pm EST (NY) for all other major markets and causes the markets spreads to widen, liquidity to dry up and ultimately traders to get slipped and stopped out. It is therefore very important for traders who plan to hold trades overnight to ensure they master how to handle this daily fluctuation. Let's look at some ideas to help you on what you can do.

Limit your size

Stop and limit orders are a great way to manage your trades without having to constantly monitor the market yourself. The limits are decided by the exchange in an attempt to avoid extreme volatility or manipulation in the markets. Longer term trades are generally always smaller in size and looking for high pip returns. If you keep your size at a reasonable level, the fluctuation of rollover shouldnt affect your trading. Try to keep things stable to where a 20 pip move is less than 1% of equity change.

Widen your stops

Increasing your stop only increases your risk and the amount you will lose. After you have limited your size, widen your stops for an hour to avoid any spread fluctuations that may hit your stop loss. These fluctuations are natural. Once again, if your position size is appropriate, you wont experience an issue widening then re-tightening when the market is back to normal at 6pm EST.

Dont hold high swap exotics

Lower liquidity means exotic pairs tend to have less trading activity compared to majors and crosses. Fewer traders and a lower trading volume are involved. High swap exotics are a key failing point for traders getting busted by rollover. Holding products that are naturally very volatile, naturally have a high spread and naturally have low liquidity is a mistake if you are looking to be a funded prop trader. Swap plays generally take months to play out if they play out at all and the market in the meantime is a wild rollercoaster of emotions. High swap pairs are more likely to be geopolitical in nature and less predictable. We strongly advise against holding high swap pairs overnight due to the unpredictability of just how bad rollover can get. If you do want to hold a position on these pairs (especially swap negative) sometimes its better to close and reopen the trade after rollover

Additionally, it is very important for a trader to be familiar with which products your are trading with and how the conditions change at rollover time. When you are not sure of the behavior of a pair during rollover, grab some time to monitor it and get an understand of the behavior before diving in. Most of all, control your risk.

Enjoy trading!