Traders need to know the key differences between the two kinds of intraday trading: intraday margin and overnight margin. The margin requirement for holding a particular position between different trading sessions varies. For traders to make an ample profit, it is important to understand the time cut-offs and margin requirements. Today, we shall compare and discuss intraday margins and overnight margins so you can kickstart your trading career with a bang.
What is an Overnight Margin?
For your simple understanding, imagine the overnight margin to be a position in the stock market. This position could either be long or short. The only condition is that this position mustn’t be flattened right before the day’s trading is put to a halt.
In order to retain this position overnight, the initial condition set by the particular exchange must be met by the trader. In the event the trading account is short of funds to meet the initial conditions, the position is viable for liquidation and a fine may be incurred as well.
If the position is open, the account might receive a margin call. If the initial condition is not met, then the broker would request the trader to bring the fund level up to meet the initial requirement. Upon receiving the request, the trader then has 24 hours to collect funds and pile up money in their online trading account.
Risk associated with overnight margin
Holding a position overnight comes with its own risks. This is mainly because the stock market is dynamic and volatile. The trade market might change overnight and either fall or rise. Holding a position overnight exposes your account to the vulnerabilities of market changes that happen overnight. An adverse price movement happens outside regular trade hours.
What is an Intraday Margin?
Like we just saw and analysed overnight margin, we also have an intraday margin. The concept of both intraday and overnight margin is pretty similar. The intraday margin could be defined as the money you must have in your trading account to hold a particular position throughout the regular trading hours.
Intraday Margin vs. Overnight Margin: A Table of Difference
| Intraday | Overnight |
| Intraday margin is the funds required to hold a position throughout the day. | Overnight margin, often referred to as initial margin is the minimum fund required to hold a particular position overnight. |
| The intraday margin is comparatively lower than the overnight margin. | The overnight margin is comparatively way higher than the intraday margin. |
| Different brokers have different pricing for the intraday margins. | However, the overnight margin is generally 20 times more than the intraday margin. |
Conclusion
Knowing which kind of position to choose in trading is important. The position is key to success in trading. The earnings of a trader depend on their position and to maintain a position, the trader must be thorough with the trading margins.
Disclaimer: This article is not a piece of investment advice. Trading and investing in the securities market carries risk. Please do your own due diligence or consult a trained financial professional before investing.
