🌙 While Markets Sleep, Risk Does Not: Overnight Carrying and Price Gaps

When you leave a position open over the weekend that you opened towards the market close on Friday and open your screen on Monday morning, you may have seen that the price started at a different point than you anticipated. Or you may have noticed small deductions made from your balance while maintaining your position day by day. These situations are directly related to the overnight carrying cost (swap) and price gaps (gap) frequently encountered in derivative markets.

⚠️ What is it? 🟠 Price Gap (Gap): A condition where the opening price of a financial instrument for a new session differs significantly from the previous closing price due to developments occurring while the market was closed. 🟠 Swap (Overnight Carrying Cost): The reflection arising from the interest rate differential between the components of the relevant instrument when transferring a position from one trading day to another.

🧠 Why Does It Happen? 1️⃣ Weekend Developments: Economic data, political decisions, or unexpected global events announced while markets are closed can abruptly shift the supply-demand balance. 2️⃣ Liquidity Changes: Depending on the concentration of orders in the market at the start-of-week opening, the price may be formed not at the previous closing level, but at the first point where new orders accumulate. 3️⃣ Interest Rate Policies: The interest rates of the countries to which the assets held in the position belong determine the direction and amount of overnight rollover costs.

⛔️ How Can These Risks Be Managed? 🟠 Reviewing Position Status: Assessing the risk of open positions prior to session close can be a method to avoid exposure to potential weekend news flows. 🟠 Understanding the Logic of Order Types: In cases where price gaps occur, it should be taken into account that stop-loss orders may be executed at the first available price at the open, rather than at the specified level. 🟠 Tracking Swap Rates: In long-term positions, it can be useful to examine in advance the impact of accumulated carrying costs on the total balance.

💡 Practical Tip: Taking into account that a three-day swap covering weekend risk is reflected across financial markets, especially on Wednesday nights, is a technical detail to consider when doing cost planning.

🎯 Summary: Price movements and cost burdens experienced while the market is closed or during daily rollovers are integral parts of risk management.

A disciplined approach to risk management is one of the cornerstones of sustainable financial literacy.

This content is educational and informational, not investment advice. FXPARTNER is not a broker and does not provide investment services.