Understanding the December effect.jpg

Understanding the December effect

FINANCIAL PROFESSIONALS either love or loathe the foreign exchange market in December. The currency markets thin out over the last weeks of the year as traders slope off to eat and drink their bonuses – leaving fewer traders at their desks and, therefore, less volume flowing through the market. This, in turn, allows for more volatile trading conditions where relatively small individual transactions can influence the market, leading to a predominance of day traders and speculative opportunism.

Clearly, this is the perfect melee for speculators who are the lifeblood of the forex market, even in normal trading conditions. Unlike the share markets, where gradual and progressive increases in share values are the perfect pattern, currency speculators prefer exchange rates to rise and fall allowing them to buy and sell on both sides of the market. Speculators are not tied to specific currencies or even to specific currency pairs, so whether the Yen is weakening or the South African Rand is strengthening, there is a way to take advantage of these changes, as long as you have the knowledge and facilities to do so.

However, this year-end volatility is a nightmare for those with a specific currency to buy before a specific date, for a non-speculative purpose. Importers and exporters are in the same boat as overseas property buyers in this respect – with a need for the physical delivery of currency and, most usually, a deadline by which this transaction must take place. In this environment, the end of year volatility can seem a daunting distraction and infuriating in the way that it frustrates your plans. However, the volatility can be just as useful to someone in this position as it is to the speculators.

There are few times in the year outside December when market volatility is more striking, therefore, there are few times when the market will offer such attractive opportunities to buy your required currency, irrespective of the overall trend or momentum. The key to doing so successfully is to have access to a specialist in the foreign exchange market and one that offers automated market orders. These will avoid the inherent risk that a fantastic exchange rate is available while you are unavailable for some reason. In fact, knowing that the exchange rate you want is being targeted, even while you don’t have time to follow the market, is a relief.

And while December provides exaggerated exchange rate fluctuations, these same rules apply throughout the year. But, few of those investing in international property will have the insight into currency market movements to make sure they don’t lose out to volatility, and fewer still will know the best ways to take advantage of these trading conditions.

At Halo Financial, we spend a great deal of our time explaining currency movements to our clients before they transact. This is because the reporting of currency market movements is generally done by market professionals who take great pride in using the latest buzz-words and jargon, but forget to explain their comments in terms that those who don’t trade in the markets would understand.

Consequently, although in this age of www. and dot com everything, there is more raw information available to all of us – finding the information you need about something as complex as the currency market but written in layman’s terms, is as hard as it ever was.

The days of straightforward answers to simple questions are not entirely over but finding the right person to ask is the key to success.

• David is a currency dealer with Halo Financial Ltd, delivering competitive exchange rates and a personalised service, to help private clients throughout Europe save time, money and hassle on their foreign exchange. David Johnson can be contacted via e-mail at david.johnson@halofinancial.com