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Day Trading/Spikes in the after-hours


QUESTION: Dear Mark,
I see the futures market sometimes would spike up or down by many points in the after-hours when liquidity is very low. How will this affect the hedgers and speculators that hold their positions overnight? Isn't such move going to wipe out their accounts? How do brokers deal with margin calls arising from such spikes?

ANSWER: Hi Choo,

Yes there can be overnight moves. This is one reason I prefer to DAY TRADE futures.

But the reality is that smart investors are not fully leveraged. So anybody with any common sense would NOT be holding 1 contract overnight and ONLY have enough money to trade one contract and deal with margin calls.

Keep in mind that the overnight margin requirement is based on the expected overnight volatility in the first place! So exchanges will INCREASE margin requirements if the expected overnight move and volatility increases. Although you can "technically" lose more than your account, your broker has the right to impose a margin call at the maintenance margin level, liquidating all or part of the account.

If you have more margin related questions, I'd encourage you to talk to your broker. Your broker can tell you EXACTLY what their margin rules are and what to expect so we're not just discussing hypotheticals.

---------- FOLLOW-UP ----------

QUESTION: Dear Mark,
Just another one. While a gradual decline in the after-hours may be manageable, regarding those flash crashes that takes place for only 1 second or less, I was just wondering if margin call will also be triggered on hedgers'/speculators' account, from your experience?

I would find it extremely unfair if a trader's account can be wiped out due to just a single 1-second flash crash that recovers 100% of all losses a second later. This kind of unfair advantage to the HFT is extremely destabilizing to the market and harm its credibility. I don't know about you but this is extremely ridiculous to me.

Are you familiar of any policy that the exchange/regulator is implementing to handle such issue?

Hi Choo,

It's important to accept that there will always be risk when trading. When trading futures buyers are being matched with sellers, so there's always someone on the other side of trade. Bigger swings can happen when there is an absence of liquidity, so if you are interested in holding positions overnight and you are concerned about these type of moves (whether you lose or profit from them), you might want to stick to more active markets with strong volume.

With this said, the NYSE and CMEGroup have curbs (aka circuit breakers) that are trading halts when the market moves so much in one trading session. Here's a link to understand the exact requirements for these circuit breakers:

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Mark Hodge


Questions related to technical analysis, strategies, risk, trading plans, trading psychology and money management. Experience in trading all markets and time-frames with expertise in futures (e-minis, currencies, commodities) and equity options. Unfortunately I am not allowed to offer any specific trading advice (i.e. should I go long the E-mini S&P today).


I have been involved in the industry since 1995 working for Morgan Stanley Dean Witter and American Express Financial Advisors before becoming a full time trader. As Head Education Coach with Rockwell Trading I have coached hundreds of students around the world to achieve their trading goals with simple strategies, a sound trading plan and proper money management for the leveraged markets.

Currently serving as Rockwell Trading's Head Education Coach and moderator for Rockwell's Student Trading Room where we follow opportunities in the minis, interest rates, currency and grain markets daily.

Technical Analysis of Stocks & Commodities, "Day Trading With Volatility", June 2010 SFO Magazine, "Home on the Range: Lasso Trades Without Time", August 2010 SFO Magazine, "Day Trading Indicators, Part 1", January 2011 SFO Magazine, "Day Trading Indicators, Part 2", February 2011 SFO Magazine, "Technical Strategy", April 2011 SFO Magazine, "Advanced Trading Techniques - Futures Spread Trading", October 2011 Active Trader, "A Simple Day-Trading Strategy", November 2011 Marketplace Books, How to Trade Commodities: Simple Strategies for Gold and Crude That Traders Can Use in Any Market, June 2011

Formerly licensed as a financial advisor with Series 6, 7, and 63 licenses. B.A. in Organizational Communications with a Business Minor from California State University, Sacramento.

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I have worked with institutional traders, brokers, proprietary trading firms and private traders.
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