What is Overnight Trading?

Overnight trading, also known as extended-hours trading, is a practice of buying or selling equity derivatives or commodities after the share market is closed and holding them until the next trading session. It involves holding open positions overnight to gain from the price movements that are impacted by market developments. The trading strategy is used by traders who want to capture short-term opportunities while also accepting the risks involved, like price volatility, reduced liquidity, and the potential for overnight gaps. This article explains what is overnight trading, how it works, how to place an overnight trading order, and more.

How Overnight Trading Works 

Below is a simple guide on how overnight trading works.  

• Trading Window: Overnight trading is conducted after the market has closed in the usual trading hours, usually in after-market and before-market sessions so that the position can be rolled to the next day.  
• Order Placement: The traders use after-market order (AMO) facilities or platforms to place orders via their brokers. This facilitates extended or round-the-clock trading. 
• Execution Timing: The orders that are placed after the market closes are usually executed when the market reopens. There are some global assets that trade continuously during the overnight hours. 
• Global Market Access: Traders participate in international markets such as the US or European exchanges, which remain open when domestic markets are closed. 
• Asset Coverage: This type of trading is common among commodities (like gold or crude oil) and currencies, as these markets usually operate for longer hours or continuously. 
• Key Drivers: Key drivers play an important role as the trading decisions are generally influenced by global news, earnings announcements, economic data, geopolitical events, and international market movements released overnight. 

What are the Overnight Trading Hours? 

In India, the overnight trading generally applies to orders placed after normal market hours on the two primary stock exchanges, which are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

• Equity Segment: For BSE, overnight or after-market orders can be placed from 3:45 p.m. until 8:59 a.m. on the next trading day. On NSE, the overnight window for equity orders usually runs from 3:45 p.m. to around 8:57 a.m.
• Currency Segment: Traders can place after-market orders for currency pairs during the overnight window, generally from 3:45 p.m. to 8:59 a.m.
• Derivatives (F&O): For futures and options, overnight orders are typically accepted from 3:45 p.m. up to about 9:10 a.m. on the next trading day.

How to Place an Overnight Trading Order?

Here’s a step-by-step guide on how to place an overnight trading order.  

Step 1: Choose the Security:

Investors need to first select the stock, commodity, currency, or other instrument that they would like to trade overnight. 

Step 2: Check Overnight Eligibility:

They need to make sure that the instrument and their broker allow for overnight or after-market trading. 

Step 3: Log into their Trading Account:

Investors then need to log into the trading platform and place their order. 

Step 4: Select Order Type:

Investors need to carefully choose the appropriate option, such as an After-Market Order (AMO) or extended-hours order.  

Step 5: Enter Order Details:

They need to specify the quantity, price (if required), and whether it is a buy or sell order. 

Step 6: Review and Place the Order:

Double-check all details and submit the order before the cut-off time set by the broker. 

Step 7: Order Execution:

The order is executed during the permitted overnight session or when the market reopens on the next trading day, depending on the asset and platform. 

What are the Benefits of Overnight Trading?

The following are the benefits of overnight trading.

1. An International Opportunity to Trade: Overnight trading will allow investors to have an opportunity to trade in the international markets when the domestic markets are closed.
2. Early Reaction to News: Helps traders to react to news of earnings announcements, economic news or world news that is published after market hours.
3. Possible Price Gain: Favourable price movements would be easily captured by the investors before the next routine trading session. 
4. Portfolio Flexibility: It gives an investor more time frames to enter, modify, or get out of positions.
5. Diversification Across Assets: Supports trading in forex, commodities, and futures that remain active overnight. 
6. Strategic Positioning: Overnight trading helps traders align positions in advance of the next day’s market open based on overnight developments.

Disclaimer: All investments are subject to market risks, economic conditions, regulatory changes, and other external factors. Returns are not guaranteed and may vary based on market performance and investment tenure. Investors should assess their risk tolerance and financial objectives, conduct their own research, and consult a qualified financial advisor before making any investment decisions.

Conclusion

Overnight trading allows traders to take positions outside regular market hours and hold them into the next trading session to benefit from global market movements. It is widely applied in the equities, commodities, forex, and international markets that do not close at domestic markets. Although overnight trading is flexible and early in response to market reactions, it is also associated with low liquidity and price gaps. With a secure online trading app, traders can track positions, place after-market orders effectively, and hedge risks as they trade overnight in opportunities.