The witching hour in finance is the last hour of the trading day. This is when exchanges are known to have a lot of volatility due to some routine phenomena, such as large traders seeking to close out positions before the closing bell. Although the term sounds like something related to something poetic or even supernatural, it actually just refers to increased risk and volatility.
Some experts contend that the witching hour for an exchange is the province of large professional or institutional traders. As these giants of finance adjust their holdings, volatility can result. This is especially true at the end of a week, when markets have been interrupted, or when some other market event coincides with the witching hour.
Another way to understand the term “witching hour” in finance is in relation to a “super-witching” event, known as triple or quadruple witching. On the third Friday of every financial order, various financial products are ‘turned over’, which can cause additional volatility. Many traders and others pay attention to this triple or quadruple witching; some try to time buys, but others merely avoid buying or selling during that market day. As a general rule, experts warn beginners against approaching a triple witching day as if it was just any trading day, and looking out for dramatic changes on that market date can be helpful for an individual portfolio’s bottom line.
Part of the triple or quadruple witching, which happens four times a year, is that various stock options, stock index options, and futures contracts happen to expire at the same time. Financial products like futures contracts have an expiration date, when various outcomes are triggered automatically. These create even more volatility, and, as a result, the market can get chaotic.
Although "witching" is most commonly known in reference to the above times or events, some finance professionals have come to use it in the abstract for certain kinds of outcomes. One could mention “witching”, for example, as an interruption of some hoped-for grant process approval or finalization, where unanticipated problems could get in the way of closing a deal. The same could apply to just about any deal that is in its final phase, but hung up by some "witching" issue, especially if that issue is related to temporarily inflated risk or volatility.
