Reviewing Overnight Risk Before The Open
Markets don't stop moving when the desk goes home, so the first job every morning is checking what changed overnight — news, other markets, corporate actions — before deciding what to do with the book.
Prerequisites: Start-Of-Day Positions And The SOD File
A trader closes their positions for the night at a reasonable-looking risk level. While they're asleep, Asian markets sell off, a company in the book issues a profit warning before the local open, and overnight futures on the domestic index are down two percent. None of the book's numbers have changed since the desk logged off — but the risk sitting in it has changed enormously, because the world around it moved. Reviewing overnight risk is the process of catching up on everything that happened while the desk wasn't watching, before deciding what to do at the open.
What gets checked
- Overnight price action in correlated markets — index futures, relevant currencies, commodities the book is exposed to.
- Company-specific news on any held name — earnings, guidance changes, ratings actions, litigation.
- Corporate actions that took effect overnight — splits, spinoffs, dividends — which can otherwise make a position look like it moved when it actually didn't.
- Macro releases from other time zones that affect correlated assets even if the domestic market hasn't opened yet.
Why timing matters
The review has to happen before the open, not during it, because the first minutes of trading are when a book with a bad overnight surprise gets the worst execution — wide spreads, fast-moving prices, and other participants who have already digested the same news. A desk that walks into the open without having reviewed overnight risk is trading blind into whatever changed while they were away.
| Check | Typical source |
|---|---|
| Overnight index futures move | Futures exchange data |
| Correlated market close levels | Asian/European close prints |
| Name-specific news | News wires, company filings |
| Corporate actions effective today | Back-office/SOD file |
What this means in practice
A structured overnight risk review, done at a consistent time each morning, turns "did anything happen" into a repeatable check rather than a hope that someone would have mentioned it. Desks that skip this step tend to find out about overnight risk the expensive way — from the P&L, after the open, rather than from the review, before it.
Overnight risk review closes the gap between what the book's numbers say and what actually happened in the world while the desk was away from the screen — checked before the open, because that's when a surprise is most costly to trade around.
Further reading
- Harris, Trading and Exchanges (ch. 5)