In order to earn solid returns on your investment in the currency market over time, you need to be prepared to ride out the ups and downs of the foreign exchange. When you open a certain position you have two options rather close it or hold it. Closing a certain position in forex may be easy to decide than holding. It requires a lot of factors to consider before holding a position.
The position on hold does not always close in profit. However, there are some techniques you can use that will help minimize your risk and maximize your profitability if you’re willing to do so.
If you’re just getting started with forex trading, you might be wondering how long you should hold a forex position before closing them out.
A forex position can be held for as long as the trader wishes. It is dependent on the trader’s trading style, strategy, risk tolerance, and market conditions at any given time.
Holding onto forex positions longer than you should cost you significant amounts of money, but holding on to them too short of a time can also cause losses if the market suddenly turns against you.
When you’re done reading this article, you’ll have all the information you need to choose the right amount of time to hold any given position in your next trade. Keep going!
How Long Can You Hold a Forex Position:5 Factors
You can hold a position open for a few days, several weeks, overnight o even years. It is mainly dependent on the trader’s profit target and many other factors. Let’s see below what the factors are to decide when and how long to hold a certain position on trade
1-Trading Style Decides Position Holding Duration
There are many styles of trading that traders adopt according to their trading psychology, skills, and schedule e.g, scalping, swing trade, and day trade.
For scalper with time frame M1, M5, and M15 experts recommend holding a position for less than an hour is enough to make a profit.
For swing traders, it is recommended to hold a position from 1 hour to 6 hours maximum under time frames: M30, H1, H4.
For a day trader, the holding time is a minimum of 1 day to a maximum of 6 days within a week under time frames D1, W1, M1.
2-Trading strategy determines Open Position Time
There are different types of trading strategies under different time frames and trading psychology. For example, in a hedge trading strategy the position holding time is dependent on price movement and trend direction.
Institutional traders trade in long-term positions, and they deal with several open positions at the same time. They are trained to play this role for big institutions like banks and firms.
3- Trader’s Goal Decide When to Hold Position
It is a personal decision to hold or close a particular trade. About 70% of traders trade with a proper mindset and profit targets. They know when to enter and leave the position unless some uncertain news hits.
That’s why the holding position duration varies from trader to trader. If market conditions are the same, every trader should take the same decision. But this does not happen. The reason is that individual traders’ portfolios are always different from one another.
4- Market Conditions Determine Hold Position
Many traders rely on market conditions to let the position remain open. If the market goes in their favor, they will keep it going to make more and more profit. When the market changes its direction, it will close its position to avoid losses.
In the case of political instability and natural calamities, the economic situation of countries also undergoes a big change. Any sudden change in the form of news can impact the price movement of currencies badly. So, traders decide to hold positions on the basis of impending news and information.
5-Size of Position Matters
The size of the position matters a lot to determine when to close and when to hold. Too small positions with large leverage will automatically close as the price falls.
Similarly, a significant position will small leverage has the potential to hold overnight for several days. It’s important to calculate your position size with respect to the risk-reward ratio before holding any trade.
What Does It Mean by Holding Forex Position
You might have heard the term holding position or overnight position in your forex journey. When you open order and leave it for some time or even days without closing it is known as a position on hold. Mostly overnight positions in forex are on hold.
An overnight position is when you hold a forex position for more than one day. When there are financial markets that are closed, or if you have limited time to trade during the day, then an overnight position is just what you need.
It’s important to remember that overnight positions carry with them a greater degree of risk due to the volatility of currencies in relation to each other.
For example, let’s say you hold an American dollar position while at night Japan releases new information about their economy, which impacts their currency exchange rate with the US dollar.
Why It Is Necessary to Hold Forex Position
Forex positions can sometimes take weeks or months to close fully, so it is essential to know how long you are willing to stay invested in your trade. Also, not all trades are equally profitable; and sometimes, it can be the case that an investment will become more favorable over time as new information comes out.
Therefore, knowing how long you are willing to hold onto your forex position will allow you to choose the most appropriate one for your needs.
For example, if you want to quickly invest some money into the market with no set timeframe for when you want to exit your position, then go with a shorter-term strategy like scalping.
If instead, you would like to keep your money invested for some amount of time but do not know when exactly you want to sell, then opt for a medium-term strategy such as swing trading or day trading, where you make frequent but shorter-term investments.
Should You Always Be In A Position When the Market Closes
No, not at all; you should close the position before the market closes. If you hold, it will charge more spread. It all depends on what your broker charge for holding positions.
In forex, one contract will expire at the end of the trading day which is 4:00 pm EST on their exchange. So if it’s 8:00 am PST, your trade will expire at 12:00 pm EST. If it’s 3:30 pm PST, your trade will expire at 7:30 pm EST.
So no matter what time zone you’re in, make sure to check and see what time the markets close so that you can get into a position before then.
Does forex position expire?
During option trading over the counter, the traders can set prices and expiry dates for orders. However, in future contracts, the traders have to fulfill the order within the price limit and time. In forex option trading traders mostly choose the expiration date according to their trading strategy.
Can you hold forex overnight?
Yes, you can but you will have to pay the cost of holding an overnight position. This cost will be deducted from your profit in the form of a spread or interest rate. Moreover, every broker has different rates and conditions for holding an overnight position. So check the conditions first.
How long do day traders hold positions in forex?
Day traders as the name suggest, close the pending orders within a day. They dont hold any position overnight. They trade on 24hr time frame mainly. Not all traders are the same; some traders may have the exception of leaving a few trades open overnight. It all depends on what traders feel right about the situation.
Why does it matter what time of day I enter my trades?
Traders will often ask what time of day is best to enter trades, but that largely depends on how aggressive you want to be with your risk tolerance. If you’re new to forex trading, it’s best to trade during the European and U.S. hours because you’re more likely to find an opportunity than at other times of the day.
For your orders to fill, there needs to be sufficient liquidity and opportunities for trading in the market which only typically occur during business hours.
In order to determine how long you should hold a forex position, it is important to first assess your situation. If the market is going in your favor, then you can keep holding onto the trade.
However, if the market isn’t going in your favor and hasn’t for a while, then there’s a possibility that trend could continue. In these situations, it may be wise to wait and not overstay your welcome with one trade.
For example, if the EUR/USD has been declining steadily for a few weeks and continues to do so, you would likely want to close out of the position because this trend has a high probability of continuing.