As Christmas and the New Year are approaching, most traders usually start thinking about taking vacations, what kind of presents to give their family and friends, or looking forward to holiday parties. However, if you still want to trade the markets on holidays, understanding the inherent risks and dangers of after-hours trading may limit your risk exposure. There are a lot of reasons to avoid trading on holidays. Market inactivity, lack of liquidity and unexpected behavior may make trading on holidays very difficult.
Many argue that a lack of liquidity defeats the purpose of forex trading. The forex market is dubbed as the most liquid financial market in the world, with a daily turnover of $5.3 trillion. Trading on holidays means you may won’t be able to capitalize on one of the biggest draws of the forex market. Additionally, since banks are closed on holidays and professional traders are on vacation, two-way trading is limited, which means prices may move very easily in one direction.
Many forex brokers, especially of the online variety, have facilities available for trading on these major holidays. But the reality is that the volume becomes very thin. Let's face it-even traders like to take time off to spend with their families and friends and spend money at the mall. The effect of the decreased volume in the forex market is decreased liquidity. When a market does not have liquidity it is difficult at best to get in and out of positions profitably.
Due to low market liquidity and volatility, the price can move unpredictably. It may swing in 15 pips range the whole day or rise dramatically in a minute. There will be no chance for you as an ordinary trader to react to those market movements. By the way, do not use your trading strategies or automated expert ad-visors too. During holidays, market can mislead the sophisticated algorithm of your top reliable forex expert ad-visor that may cause huge losses for you.
An often overlooked aspect of forex trading is the importance of mental clarity. Whether you’re a part-time trader or full-time day trader, spending time away from the markets is really important. Taking time off will give you a better sense of perspective, which can boost productivity and make you a better trader in the long run. So many traders are already concerned about taking time off because they don’t want to miss important events. This makes holidays a perfect time to step away from the markets.