Overnight Margin Spikes & Forced Flatten Policies in Prop Firms
Overnight margin spikes and forced flatten policies exist because after-hours trading is dangerous. Liquidity dries up, spreads widen, and price jumps become violent. Prop firms don't want traders blowing accounts when the market is thin — so they tighten risk automatically after certain hours and force-flatten positions before volatility ramps up.
Why Overnight Risk Is Higher
Overnight futures trading behaves nothing like the U.S. regular session. Several factors make it unsafe:
- Thin liquidity — fewer participants, weaker order books
- Wider spreads — 1–2 tick spreads in RTH become 5–20 ticks overnight
- Geopolitical headline risk
- Unpredictable price gaps at the reopen
Prop firms manage this by increasing margin requirements or blocking positions entirely.
Overnight Margin Spikes Explained
Margin spikes are automatic increases in the buying power required to hold a position overnight. Exchanges raise margin because volatility increases outside regular trading hours.
Prop firms follow the same logic. Margin spikes usually hit around:
- 3:55 PM ET (equity futures settlement window)
- 5:00 PM ET (futures reopen)
- Global news cycles
Even if the exchange allows you to hold, your prop firm may not.
Forced Flatten Policies
Forced flatten means the firm will close all of your open trades at a specific time, no questions asked. These policies kick in when:
- overnight margin requirements jump
- the firm does not allow holding past market close
- the market is about to reopen after a break
- volatility becomes extreme
The flatten order is server-side, meaning it executes even if your platform is offline.
Examples of Forced Flatten Triggers
1. End of Regular Trading Hours
Most prop firms require you to be flat before RTH close on equity futures (ES, NQ, YM). If you’re not flat, they flatten you automatically.
2. High-Volatility Overnight Sessions
If volatility spikes in the Asian or European session, the risk desk may force flatten for safety.
3. Margin Spike Thresholds
If the required margin exceeds what your prop account is allowed to carry, your trades get closed instantly.
4. News Windows Overlapping Overnight Trading
Certain news events like FOMC minutes or Asia/Europe high-impact data can cause firms to auto-flatten for the entire period.
Positions Left Open During Forced Flatten Windows
If you hold positions during forced-flatten periods, one of two things happens:
- The firm flattens you instantly
- You take a violation if flattening wasn’t possible in time
Prop firms always protect themselves first.
Forced Flatten vs Trading Halts
Forced flatten is a firm-level risk rule. Trading halts come from the exchange. If you want more on halts, see your Trading Halt Rules article.
How to Avoid Overnight Violations
- Always know the firm’s flat-by time
- Don’t hold positions into the futures reopen
- Expect spreads to widen dramatically after 5 PM ET
- Don’t rely on trailing stops overnight
- Manually flatten instead of waiting for automated systems
This ties directly into disconnect policies — the thinner the market, the higher the chance your platform desyncs.
Final Takeaway
Overnight trading is a minefield. Margin spikes and forced flatten rules exist to protect both you and the firm from thin liquidity and violent moves. Respect the flat-by times and never assume overnight conditions are the same as regular hours — they aren’t.