With the Christmas and New Year break taking a few weeks out of the calendar, forex traders are usually buzzing to get into the markets and start taking trades. But can you actually trade forex during Christmas?
Trading forex over Christmas is a bad idea due to a lack of trading volume, higher spreads and less predictable moves. Traders are much better off backtesting their trading systems until the New Year, then resuming trading activities.
Trading Forex Over Christmas?
Many forex traders, especially new traders, often wonder whether or not it’s possible to trade forex over the festive period. The answer is very simple: no, you should not be trading during Christmas and New Year!
During this time of year, there is a lack of liquidity in the market due to banks and hedge funds closing over the holiday period. This lack of liquidity can lead to increased spreads and wide gaps between the bid/ask prices which make trading very difficult for retail traders; it’s better to postpone your trades until after Christmas.
Most traders also prefer to take a few days off and spend time with their family and closest friends: you might not get the chance to meet up with anyone if you spend all your time glued in front of your computer screens. This also explains why trading volumes are down during the festive period.
Why Is Trading Forex Over Christmas A Bad Idea?
Trading Christmas over the Christmas year is a bad idea due to a few factors, primarily the trading volume being completely void. As the Banks are shut, the volume and movement in currency pairs is extremely low. There really is no point trading, as there are no opportunities.
The Forex market moves so much during the course of a normal day or week, that even with it being closed or out of use for just a week or two over the Xmas period, the chances are you may not notice any significant movements in your account.
Another factor to consider is that with lower volume, the spreads (difference between bid and ask price) are going to be much bigger. You’re likely to find this eating away at potential profits on your trades.
If you were trading during the first week of January, on the other hand, then this is probably the best time to be looking at opening an account with a forex broker. The New Year holiday results in huge amounts of downtime for traders, and financial institutions are quick to resume normal business again after it finishes, so the trading volume comes back with a vengeance!
What Should You Do During Christmas Instead, As A Forex Trader?
So now we have established that trading forex during the Christmas break is not a great idea – what can you do with your time instead?
Take A Well Earned Break
The first option is to take a well earned break from the charts over Christmas and New Years. You will get an opportunity to rest up, spend time with family and friends, get some much needed sleep…
Backtest Your Forex Trading Strategy
Another option, my personal favourite, is to spend the Christmas period backtesting your forex trading strategies. Backtesting your forex trading strategy is essentially trading it over past data, as if it was live markets, so you can journal all results.
By doing this, you will be going into the next trading year with a refined trading strategy, ready to make your first deposit and put it live.
If you have been trading forex during the past year and not backtesting your strategies, I would recommend stop trading and take a break for Christmas before backtesting strategies ready to go live in the new year.
Develop New Strategies And Reflect On Results
You could also use the down time to research, trial and develop new forex trading strategies. Christmas is a great opportunity to test out your ideas with minimal risk or capital at stake. Plus you won’t be missing any good opportunities like you would if you were glued to the charts all day!
You could use either a demo account, or just paper trade as the trading volume won’t be there. Christmas is also a perfect time to reflect on last years trading results and plan for the year ahead.
In Conclusion – Can You Trade Forex During Christmas?
In short, you can trade forex over the Christmas break but it’s a bad idea! Take a rest, backtest, develop new strategies, reflect, and so on. Otherwise just remember that trading volume is low during this time of year, meaning the spreads are bigger making it harder for you to execute your trades. Just relax with family & friends!
For help with backtesting strategies please check out our in-depth article on how to backtest a trading strategy.