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Advanced Techniques for Futures Trading: Order Carry Over vs. End of Day Cancellation

January 9, 2019 by Daniels Trading| Tips & Strategies

The minutes preceding the closing bell are a time of intense deliberation for traders who are managing open positions. For intraday and day traders, the decision is simple because going home net-flat is the name of the game. However, when implementing multi-session advanced trading strategies, each market closure presents a unique collection of assumed risks and potential rewards.

When the Market Is Closed, It Really Isn’t

At the crux of the decision to carry an open position through a daily or weekly close is the question of risk exposure. Day and intraday traders view being active while the market is ceased as a liability. In order to eliminate this risk, no matter the scope of their advanced trading strategies, they elect end of day (EOD) cancellation to exit each session with zero exposure.

While the futures market daily “overnight” period (about an hour depending upon product) may seem insignificant, a lot can happen during this time. A breaking news item may drive supply/demand and bid/ask spreads haywire, or a computer glitch may prompt a product to resume trade at a price very different from its previous close. These phenomenon create several challenges for the trader, most of which being “gaps” in the market.

Gaps in price are discrepancies in the market that occur unexpectedly, giving retail traders no opportunity to reduce leverage or close out open positions. It’s due to this aspect of futures trading that higher margin requirements, known as “maintenance” or “overnight” margins, are put into place going into market close. Here are a few for the most commonly traded products on the CME:

Contract Symbol Intraday Margin Overnight Margin
E-mini S&P 500 ES $500 $6000
Euro FX 6E $1265 $2300
WTI Crude Oil CL $1000 $4275
Gold GC $1500 $3400
Corn ZC $440 $800

Overnight margin requirements must be taken into account when implementing advanced trading strategies. In addition, the liability involved with the daily break and weekly close must be figured into any carry over trading plan. Simply put, while the market is closed for business, risk is not.

Ready to think like a technical trader? Download our free guide to learn how to identify chart formations and take action when the time is right.

Advanced Trading Strategies: Capitalizing on Gaps in Price

While the impact of an unexpected gap in the market may be either positive or negative, many traders view their occurrence as creating opportunity. In fact, there are many advanced trading strategies designed to capitalize upon a new gap forming or utilize an existing one.

From the perspective of a swing or long-term trader, benefitting from gaps involves anticipating the behavior of a market during its close. One popular, albeit risky, way of doing this involves carrying open positions through the weekend break:

  • Weekend gap: As far as gaps go, they are often found from the Friday close to the Sunday electronic open. These instances are typically brought on by breaking news items or scheduled economic events that have skewed perception of the market, thus influencing supply/demand levels. For instance, during the 2018 G20 Leaders’ Summit in Argentina (Friday 30 November to Sunday 1 December), news of OPEC production cuts and the official signing of USMCA made headlines while the markets were closed. Subsequently, gaps in pricing for WTI crude oil futures — as well as the U.S. indices — developed upon the Sunday afternoon electronic open. Traders that anticipated such events occurring carried long positions in CL and ES through Friday’s close, reaping the gains when trade resumed.

For day and intraday traders practicing End of Day (EOD) cancellation, gaps are addressed from a more technical perspective. Here are a few common methods:

  • Support and resistance: Gaps in pricing are widely viewed as being areas of robust technical support and resistance. Strategies built to utilize gaps as potential market entry or stop out points for short-term trades are often employed on an intraday basis.
  • Market profile: According to market profile methodology, the majority of thinly traded price ranges or full-blown gaps are eventually filled in by the trade of market participants. Day and intraday strategies are frequently implemented in anticipation of short-term price action returning to gap areas created during a market close.

Don’t Ignore the Closing Bell!

The decision to carry open positions through a market closure or practice end of day exit is a big one. It represents an assumption or denial of added risk exposure, essentially defining what type of trader you are.

For more information on what the market close means to your trading plan, schedule a conversation with a veteran futures broker at Daniels Trading today.

Ready to think like a technical trader? Download our free guide to learn how to identify chart formations and take action when the time is right.

Filed Under: Tips & Strategies, Uncategorized

About Daniels Trading

Daniels Trading is division of StoneX Financial Inc. located in the heart of Chicago’s financial district. Established by renowned commodity trader Andy Daniels in 1995, Daniels Trading was built on a culture of trust committed to a mission of Independence, Objectivity and Reliability.

Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

© 2023 StoneX Group Inc. All Rights Reserved

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Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

© 2023 StoneX Group Inc. All Rights Reserved

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