One of the worst things about trading in the Christmas period is the volatility.  One of the best things about trading in the Christmas period is the volatility.

The Christmas period, which lasts from the third week of December to the second week of January is a notably frisky period for just about any trading, and financial spread betting – which is more exposed to volatility than ordinary trading – is even more exposed to this.

The reason for this is quite simple; a lot of the biggest traders are on holiday around this period.  While they are not in they will not be trading on the big portfolios, and this further means that the liquidity will be down.  So while this doesn’t mean that the market is going to go down or up, it does mean that it is more likely to be exaggerated in one or other direction.

The other notorious period for this is the August period.  This August most of the stock exchanges saw a massive rally upwards, which in itself reflected a trend that had been going on for some time and would continue doing so for the rest of the year.  However there was some scepticism at the time, with Justin Urquhart Stewart of seven investment management calling it “an office boy rally” saying that when the important people came back they would realise the insanity of this and pull the plug

This is why the markets shut for a bit longer over Christmas than the shops do.  However, they have to open at some time and while the big fund managers are down on the ski slopes the market may be doing all sorts of crazy things.

Last Updated: December 23rd, 2009