The Lunar New Year is a major holiday in South Korea; most homes get reunited during this period and there is a reasonable suspension of business activities in the country. Although it is notable that this period was of cultural worth, few individuals are aware of the financial ripple effects that are generated by such a period, especially in the foreign exchange market. During the Lunar New Year in South Korea it is likely that a forex trader will see signs of greater volatility than is usual during a typical week, creating opportunity as well as risk.
Overall, this holiday period would result in reduced activity in the market with South Korean institutions and retail traders taking time off during the period. Nevertheless, forex markets across the globe are open. This discrepancy in liquidity may result in thinner liquidity particularly when a currency pair that includes the Korean won is subject to liquidity. In a marketplace where there is a small number of participant transactions, any minor transaction may lead to a movement in prices by larger values. The traders not on vacation tend to move through sharp swings that are abnormally steeper than normal, with less depth.
In addition to local market stagnation, it can be seen that there are regional forces that breed forex volatility. China, Vietnam, and Singapore are some of the Asian economies where the Lunar New Year has been observed. Consequently, the market suffers a coordinated languor as most trading desks are forced to work on reduced hours or shut down completely. Such declination in the volume in the Asian market introduces another twist of unpredictability, more so to currency pairings related to the area. This means that the South Korean traders are more cautious when dealing with cross-border positions.
A change of consumer spending trend is the other force behind forex volatility experienced during this era. There is a common general spending by South Korean households a week before Lunar New Year on gifts, food, and traveling during this period. Imports tend to vary in response to these shifts in domestic demand and that is known as currency sentiment. Others enter invoices in foreign countries demanding forex payments done before the holiday and hence adding momentary burdens on the won. Currencies seasonality traders who are observant to such seasonal trends tend to expect temporary but sharp fluctuations in pricing of currency.
The investors across the globe also focus on economic indicators that are published near or after the holiday. When major announcements lead to less participation in South Korean markets, the reactions may be overstated. Even neutral news will give oversized movements in case there are fewer traders to provide counterweight. It makes it sensitive to not only increases in volatility that otherwise might have been more tame, but it lets it become highly volatile at a moment there is no other explanation besides that type of sensitivity.
The practice of forex trading in the Lunar New Year occasion in South Korea also acquires a more psychological tone. As markets are less active and routine is no longer romanticized, there is a tendency of traders becoming more reactive to news or price movements. This is capable of producing reduced holding times and rapid decision-making, providing a further source of intraday volatility. Among the adherents of technical analysis, the actions of prices at this period may differ considerably with normal behavior and teachings cease to work as well.
In spite of such complications, some veteran traders in South Korea consider such seasonal volatility a strategic opportunity. It can be said with careful planning and further controls over risks, one can take advantage of extreme changes in price. Some plan ahead based on past trends and economic calendars, others set up automated aspects in the case they are in the market.
The Lunar New Year comes with a special set of circumstances which redefine forex trading in South Korea. The interaction of low liquidity, trading market suspensions across regions of operation, and seasonal spending changes create quite a unique environment in which volatility is virtually pre-determined. This can be a season of occupational opportunity to traders who know how to take advantage of its unique dynamics, provided that those who do the most know how to contend with the increased uncertainty of the times.
