What a Holiday Does to Your Cost Per Trade

[Fairman]

What a Holiday Does to Your Cost Per Trade

Scenario: on a normal day, the spread on EUR/USD is 0.8 pips. During a thin holiday session, it widens to 3.0 pips. You trade 0.5 lots with a 10-pip stop.

Cost per trade. Normal: 0.8 pips times 5 dollars per pip is 4 dollars. Holiday: 3.0 pips times 5 dollars is 15 dollars. The cost almost quadruples.

As a share of the stop. A 10-pip stop risks 50 dollars. The normal spread takes 8 percent of that. The holiday spread takes 30 percent. A trade that looked reasonable on a normal day has a materially weaker structure.

Break-even win rate for a one-to-two ratio. Normal: effective risk 10.8 pips, effective reward 19.2. Break-even: 10.8 divided by 30, which is 36 percent. Holiday: effective risk 13, reward 17. Break-even: 13 divided by 30, which is 43 percent. The required win rate rose by seven points because of the spread alone.

Add the other holiday effects: erratic price action, spikes that trigger tight stops, and low volume that makes technical levels unreliable.

Options: skip trading, widen stops and shrink size, or choose pairs less affected. Check the broker's holiday notice for altered hours and margins.

Also note that positions held through holidays can face unusual swap days, as the settlement calendar shifts.

Exercise: measure the spread of your pair at the next holiday session, and compute the cost share against your stop.