# Overnight risk

Overnight risk is the possibility that a stock’s value changes while its main exchange is closed, leaving an investor unable to trade at the previous closing price.

## What it means

A stock can close at one price and open at another because information arrives while its main exchange is closed. Earnings announcements, economic news, geopolitical events and developments affecting a particular company can all change what market participants are willing to pay. The difference between the previous close and the next opening price is an *opening gap*.

Overnight risk applies to a position held across the close and to an order waiting for the next session. After-hours or pre-market trading may be available for some stocks, but access and liquidity can differ from regular trading. A closing price is therefore not a price at which an investor is assured of trading the next morning.

## How it is calculated

There is no single formula that captures the probability and size of every overnight move. A useful way to **measure a gap after it occurs** is:

`Opening gap (%) = [(next regular-session opening price − previous regular-session closing price) / previous regular-session closing price] × 100`

- **Next regular-session opening price:** the price used for the stock’s opening trade in the next regular session, in US$ per share.
- **Previous regular-session closing price:** the stock’s closing price in the preceding regular session, in US$ per share.
- **Opening gap (%):** the change relative to that close, expressed as a percentage. A negative result indicates a lower opening price.

For an unchanged number of shares, an illustrative change in position value can be calculated as `shares held × (opening price − closing price)`. This gives a US$ change between those two prices, not the actual profit or loss on a trade. An investor’s fill price, fees and any later price movement can change the outcome.

## Worked example

Suppose, hypothetically, an investor holds **100 shares** of a stock that closes at **US$50** per share. The position’s closing value is **100 × US$50 = US$5,000**.

Before the next regular session, the company releases news. The stock opens at **US$45**. Its opening gap is **[(US$45 − US$50) / US$50] × 100 = −10%**. At the opening price, the 100 shares are worth **US$4,500**, an illustrative **US$500** decrease from their closing value.

The example does not imply that every share could have been sold at US$45, or that the stock would stay at that price. It shows why a US$50 closing price cannot be treated as a guaranteed exit price after the market reopens.

## Why it matters before you trade

An overnight gap can bypass a price level an investor had in mind. For example, a stop order triggered at the next open may execute at a price different from its stop price; a stop-limit order may not execute at all if its limit cannot be met. Neither order type removes overnight risk.

Position size affects the US$ exposure to a given gap: the same US$5-per-share move changes the marked value of 10 shares by US$50 and 1,000 shares by US$5,000. Short positions can also be affected by an upward gap. Before placing an order, a pre-trade check can identify whether the position may remain open through a known event and distinguish possible opening-price changes from ordinary trading costs.

## How PreTrAIde uses it

PreTrAIde does not specify a separate overnight-risk measure or claim to forecast the next opening gap. Its pre-trade analysis assesses a proposed stock basket before an order is placed, using quantitative measures including daily volatility and 1-day 95% value at risk, alongside recent news and analyst ratings. It returns a risk assessment and a GO, NO-GO or MODIFY verdict for the basket and each line, with plain-language reasoning. Those outputs are decision support, not recommendations or guarantees about overnight prices.

## Common mistakes

- **Treating daily volatility as an overnight-gap forecast.** Daily price variability does not tell you the next opening price.
- **Assuming a stop price is guaranteed.** An order can be triggered after a gap and fill at a different price, or not fill if its limit is unmet.
- **Ignoring the position’s size.** A modest percentage gap can represent a substantial US$ change for a large holding.
- **Confusing a price change with a realized loss.** The opening-gap calculation does not establish an investor’s actual execution price or final outcome.

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Source: https://pretraide.com/glossary/overnight-risk