State of the market: the market is in conditions of low activity

Because of the celebration of Catholic Christmas, all the major stock markets of the Pacific, European and American regions are closed today. As a result, there is a significant decrease in liquidity and activity in the market. These periods, of a decrease in liquidity in financial markets, are called “thin markets”, drawing an analogy with thin ice. Entry into this period into the market is as dangerous as walking on thin ice and it can cause great losses. So, in the conditions of decreasing liquidity, when there are no large players on the market and trading volumes are reduced, the formation of unjustified price movements is possible. It is due to the fact that at low volumes a large order is opened, which instantly provokes movement by several hundred or even thousands of points; this effect is called the “thumb effect”. Moreover, this movement does not have a lasting impact on the asset, trends are preserved, and the price returns to the usual movement with the resumption of liquidity.

Such movements are dangerous for small and medium investors who leave open positions in a given period, which, as a result of the formation of such movements, may put at risk not only the effectiveness of a particular transaction, but also the integrity of a trading account. Therefore, during periods of downturn in the market, New Year and Christmas holidays, and any other days when trading platforms are closed, it is better to  reduce the trading volumes significantly and never neglect a protective orders.

Hanzenko Anton

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