Funded Forex traders are faced with a daily dilemma regarding holding trades overnight and it is the unpredictable results of rollover.
Many traders forget, or simply don’t know that rollover occurs 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 vital that traders who do plan to hold trades overnight make sure they know how to handle this daily fluctuation. Here are some ideas on what you can do.
Limit your size
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 shouldn’t affect your trading. Try to keep things stable to where a 20 pip move is less than 1% of equity change.
Widen your stops
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 won’t experience an issue widening then re-tightening when the market is back to normal at 6pm EST.
Don’t hold high swap exotics
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
It is vital that a trader is familiar with the products they trade and how the conditions change at rollover. If you are uncertain of the behavior of a pair during rollover, take some time to monitor it and get an understand of the behavior before diving in. Most of all, control your risk.