August liquidity is thin for a reason

[Shadow Trader]

Many European desks empty out in August. Portfolio managers take holidays, and the usual flow of corporate and fund orders shrinks. Markets that normally absorb a large order without fuss can jump on a medium one.

History supplies reminders. Several sharp moves in markets have come in August, including sudden yen strength in 2007 and in 2024. Thin summer books amplify shocks.

For scalpers, the effect is more subtle than a dramatic event. Average ranges in the London morning may be smaller, spreads a touch wider, and reactions to news more exaggerated.

A look at monthly statistics is revealing. Compare average spread, average range and slippage across the twelve months of a year. August often stands out in some of them.

Responses range from reducing size to avoiding certain pairs, or relaxing profit targets to match the smaller moves.

Does the strategy perform differently in the summer, and by how much?