Forex trade on the back of Brexit referendum results?

  • Welcome to the newest version of Trade2Win! We're running on the latest version of, what we consider to be, the best forum software available today. Our aim was to keep things as familiar as possible but focus on improving speed, security and usability. We hope you like the result! Please post your questions, comments, suggestions and feedback in the What's New and Feedback Thread - Sharky.
Mar 12, 2016
15
0
11
#1
Hi,

I am new to forex trading so I wanted some advice on how one would take advantage of trading on the back of major political events – like the results of the upcoming referendum on whether Britain remains in or out of the EU.

It would seem like whichever way the referendum results go, it would offer a good opportunity to bet on the GBP either strengthening or weakening (perhaps GBB/USD)

But is there much more to it then just this?

How quickly do the markets normally respond to major events like this?

For example, if Britain chooses to remain in the EU and the pound rallies, is it likely that the sharpest part of that rally might last mere minutes after the official results are announced? Or hours? Or is a more gradual change likely?

I have seen how release of market indices reports have had almost instantaneous affect on the strength of a currency, with sharp spikes taking effect within 30 seconds of such developments, after which, there tends to be a short dip.

And could it be the case that which ever way the referendum results go, it does not necessarily mean we can predict which way GBP will go?

Is it foreseeable that with Britain remaining within the EU (which I believe is likeliest), the sterling doesn’t rally?

Any feedback would be much appreciated.

I am trying my hand at forex and thought the referendum would be a good opportunity to make a larger then normal trade, given the size of the event and the broadly predictable impact it would have.
 

tomorton

Well-known member
Feb 28, 2002
6,984
893
173
62
Exeter
#2
This is a good thing to think through but it is like playing chess blind. Its not just the referendum result that you'd be taking a position on, its the market's expectations of the referendum result, plus their views on the likely secondary results of the outcome. The market's views on what to do will also be influenced by pure price, especially if this is seen to have reached a temporary extreme.

The market's views can change without news announcements, simply as the consensus of professional analysts and commentators (not the media) evolve a majority view, and this will not hit the public domain as a press release to give us a signal flag that anything has changed.

For example immediately after the announcement of the referendum date, GBP/USD fell 3.7% over 5 days. It has since risen 3.7% over 10 days. Maybe it'll do that again. Maybe the game's already over and we trickle sideways until Christmas. Maybe the pair just resume the downtrend since last year.

The result is already known, Remain In. But that's not the question - as to how do you trade this, I would just suggest ignore the Daily Mail and the BBC and Boris Johnson and trade the price.
 
Mar 12, 2016
15
0
11
#3
This is a good thing to think through but it is like playing chess blind. Its not just the referendum result that you'd be taking a position on, its the market's expectations of the referendum result, plus their views on the likely secondary results of the outcome. The market's views on what to do will also be influenced by pure price, especially if this is seen to have reached a temporary extreme.

The market's views can change without news announcements, simply as the consensus of professional analysts and commentators (not the media) evolve a majority view, and this will not hit the public domain as a press release to give us a signal flag that anything has changed.

For example immediately after the announcement of the referendum date, GBP/USD fell 3.7% over 5 days. It has since risen 3.7% over 10 days. Maybe it'll do that again. Maybe the game's already over and we trickle sideways until Christmas. Maybe the pair just resume the downtrend since last year.

The result is already known, Remain In. But that's not the question - as to how do you trade this, I would just suggest ignore the Daily Mail and the BBC and Boris Johnson and trade the price.
Thanks for the feedback. Lots to take into account when assessing relative strength of currency pairs, so definitely more homework for me to do!