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Holiday liquidity

The reduced depth in the order book around public holidays, year-end and the quiet hours between sessions, which widens spreads and exaggerates the size of ordinary moves.

Liquidity is not constant. It peaks during the london-session and the overlap with New York, and thins sharply on Japanese and US holidays, around Christmas and New Year, and in the hour or two before the asian-session properly begins.

Thin conditions change the character of price action rather than just the spread. The same order that would be absorbed at midday in London moves the price several pips at midnight, which is why apparently inexplicable spikes cluster in those hours, as in sterling-flash-crash-2016.

Practical adjustments are to reduce size, widen stops to sit outside noise rather than inside it, and avoid resting orders in the thinnest windows unless the strategy specifically requires them.

Example: EUR/USD quotes 0.3 pips of spread at 14:00 London and 2.1 pips at 01:30. On a round trip of 5 lots that is $15 against $105 for identical trades.

Related: weekend-gap, spread-widening, london-session, asian-session

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Bid-ask spread in an order bookSell orders stacked above buy orders with a gap between the best of each.SELLERS (asks)50.0690050.051,40050.0460050.011,10050.002,30049.99800spread = 0.03BUYERS (bids)
The bid-ask spread. Buy orders sit below, sell orders above, and the gap between the best bid (50.01) and best ask (50.04) is the spread you pay to cross. Bar length shows the size resting at each price.

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