Key Takeaways
- Indian markets close for 15+ hours daily — gaps are inevitable
- Your stop loss doesn't work when market gaps past it
- US Fed, global events, SGX Nifty move while you sleep
- Naked futures positions are unlimited risk overnight
- Option hedges and position sizing are your only protection
The 2 AM Phone Call
March 23, 2020. A Monday morning that Indian traders will never forget.
You had gone to sleep on Friday with a modest long position in Nifty futures. Nothing crazy — just 2 lots. The market had been volatile, but your stop loss was in place at 8,500. You felt safe.
You woke up to this:
That's a 1,250 point gap down. Your stop loss at 8,500? It never triggered. The market opened 650 points BELOW your stop loss.
Your loss: Not the ₹45,000 you expected if stop hit. But ₹1,87,500. Your entire capital wiped out. And a margin call waiting in your inbox.
"I had a stop loss. I thought I was being responsible. Nobody told me it doesn't work when the market gaps past it."
— Retail Trader, shared in trading forum after March 2020
Why Indian Markets Are Gap Machines
The Indian stock market has a unique problem: It's closed while the world is awake.
Here's the timeline:
15+ Hours of Darkness
From 3:30 PM IST to 9:15 AM next day, you're completely blind. Everything important happens while Indian markets are closed.
The most market-moving events — US Fed decisions, US jobs data, CPI prints — all happen between 6 PM and 2 AM IST. When you wake up, the damage is already done.
Why Your Stop Loss Is a Lie
Here's the dirty truth that brokers don't advertise: Stop loss orders only work during market hours.
When you set a stop loss at 24,000 on Nifty futures, you're telling the exchange: "If price reaches 24,000, execute my sell order at market price."
But what if price never reaches 24,000? What if it jumps from 24,300 (Friday close) to 23,500 (Monday open)?
What You Expect
Stop loss at 24,000 triggers → You exit at 24,000 → Loss limited to 300 points
What Actually Happens
Gap down to 23,500 → Stop loss triggers at OPEN → You exit at 23,500 → Loss is 800 points
Your "risk-managed" trade just lost 2.7x more than you planned. And there's nothing you could have done about it.
"Stop loss is a speed limit. It works when the road is continuous. But gaps are like the road disappearing — you're already in the ditch before you can brake."
— Risk Manager, Prop Trading Firm, Mumbai
The SGX Nifty: Your 5 AM Warning System
There's one early warning system that experienced traders use: SGX Nifty (now called Gift Nifty).
SGX Nifty trades on the Singapore Exchange from 6:30 AM to 11:30 PM IST — before and after Indian market hours. It's a futures contract on Nifty 50 that gives you a preview of where the market might open.
SGX Opens
Check SGX Nifty as soon as you wake up. If it's down 200+ points, prepare for impact.
Final Preview
15 minutes before Indian open, SGX gives you the most accurate gap estimate.
Reality Hits
Indian market opens roughly where SGX was trading. Your overnight fate is sealed.
But here's the catch: Knowing about the gap doesn't help you avoid it. By the time you see SGX, your overnight position is already underwater. The information is useful for new trades, not existing ones.
The Nightmare Scenarios
Let's look at real gap events that destroyed traders:
COVID Crash
Multiple 500-1000 point gap downs in a week. Traders with long futures got wiped out. No stop loss could help.
Russia-Ukraine
Markets opened 400+ points down on invasion news. Overnight shorts made fortunes, longs got destroyed.
Fed Hawkish Surprise
US Fed more hawkish than expected at 2 AM. Nifty opened 300 points down next morning.
SVB Collapse
Silicon Valley Bank failed over weekend. Bank Nifty opened 800+ points down Monday.
Notice the pattern? The biggest gaps happen on Mondays (weekend news) and after US Fed decisions (2 AM announcements). These are predictable danger zones.
The Futures vs Options Difference
Here's why overnight gaps hurt futures traders more than option buyers:
Futures: You buy 1 lot of Nifty at 24,000. Gap down to 23,000. You lose ₹75,000 (1,000 points × 75). No limit.
Options (Buy): You buy 24,000 CE for ₹150. Gap down to 23,000. Your call is worthless. You lose ₹11,250 (₹150 × 75). That's it.
This is why many professional traders prefer options for overnight positions. The premium you pay is essentially "gap insurance."
The Professional's Gap Strategy
Instead of holding naked futures overnight, pros hold futures + protective options. Long futures + Long put = Protected position. The put limits downside while keeping upside.
How to Survive Overnight Gaps
You can't eliminate gap risk. But you can manage it:
Avoid Overnight on Event Days
US Fed decisions, RBI policy, major economic data — exit before these. The risk/reward is terrible.
Never Full Position Overnight
If you normally trade 5 lots, hold maximum 2 overnight. Position sizing is your first defense.
Use Option Hedges
Long futures? Buy a put. Short futures? Buy a call. The premium is worth the peace of mind.
Check Global Cues Before Sleeping
US futures, Asian markets, any breaking news. At least know what you're walking into tomorrow.
Be Especially Careful Fridays
Weekend = 2 days of news accumulation. Monday gaps are the biggest. Lighten up Friday.
Keep Emergency Capital
If you get a margin call, you need to act fast. Keep 30% capital liquid for emergencies.
The Math of Overnight Risk
Let's calculate the true risk of holding futures overnight:
Position: Long 1 lot Nifty futures at 24,000
Margin: ~₹1,00,000
Your planned stop: 23,900 (100 point risk = ₹7,500 loss)
But what's the REAL risk?
The Fat Tail Problem
Most days are normal. But the days that aren't normal can wipe out months of profits. This is why position sizing for worst case — not expected case — is critical.
"The market can stay irrational longer than you can stay solvent. And it can gap further than you can stay alive."
— Adapted from John Maynard Keynes
The Sleep Test
Here's the ultimate rule for overnight positions: If your position keeps you awake at night, it's too big.
The gap risk in Indian markets is structural. We trade 6.25 hours in a 24-hour global cycle. We're closed during the most volatile periods. Every overnight position is a bet that nothing bad happens in 17.75 hours.
Ask yourself before holding overnight:
- What's the worst gap that could happen tomorrow?
- Can I survive that loss without blowing up?
- Is the potential profit worth this risk?
- Am I hedged or naked?
- Is there any major event overnight I'm ignoring?
If you can't answer these questions confidently, you shouldn't be holding overnight.
Stop losses are for intraday risk. Position sizing and hedging are for overnight risk. The traders who survive long-term are not the ones who avoid all gaps — that's impossible. They're the ones who size their positions so that when gaps do happen, they live to trade another day. Your job is survival first, profits second.