What is overnight?
We all know what overnight means, but in financial terms it has an added significance. Exchanges close overnight, so trading is limited. During those hours major events can occur, and major price movements.
Where have you heard about overnight?
When markets reopen in the morning, the opening prices are a reflection on what's been happening overnight. So you'll hear the word a lot in morning reports. Sometimes very little happens overnight, sometimes a lot.
What you need to know about overnight...
Trading does not shut down completely overnight. It's still possible to trade overnight using various electronic platforms, this is known as after-hours trading or AHT.
The 'overnight position' is stock held from one day to the next. For day traders, this can carry additional risk because a number of factors can influence price overnight, which you'll probably sleep through. For investors with a longer-term strategy, this is not an issue.
One factor to be aware of is that overnight or after-hours trading is at much lower volumes, so there's less liquidity and you tend to get bigger price fluctuations. Also, if you hold a contract for difference (CFD) overnight, depending on the position you hold, you will either earn or pay an overnight premium.