Impact of Brexit Vote on Forex and Binary Options Trading
- Impact of Brexit Vote on Forex and Binary Options Trading
- Understanding The Brexit Referendum
- Forex Markets are Already Feeling Jittery
- Sudden Drops Might Occur
- Tips For Managing Trading During The Next Month
The Brexit Referendum has caused waves in the Forex trading community.
There are a lot of traders out there that are not certain about what the impact of the Brexit vote will be on their trading, and I'm sure there are probably also some traders out there that haven't even thought about the impact it might have on their trading over the next few weeks. We will be taking a brief look at the upcoming British referendum along with the potential impact it could have on your trading in the coming month or two.
Understanding The Brexit Referendum
Let's begin by dissecting the Brexit Referendum.
“Brexit” stands for British Exit. The referendum being established is looking for the UK to leave EU (European Union). It was an election promise made by David Cameron prior to becoming the Prime Minister. He promised that a referendum would be held to see whether Britain should remain with the European Union or not (1).
The important date to circle on your calendar is June 23rd, 2016 but things will get interesting way before then. The major impact for trading will most likely be in the days leading up to the referendum, while the day itself might see some wild swings.
The question will be a direct one asking whether the UK should remain a member of the EU or not. Anyone over the age of 18 will be able to vote as long as they are a national citizen.
Forex Markets are Already Feeling Jittery
The market will remain uncertain over the next couple of weeks, since there will be various impacts and news reports that will have an influence on how the GBP will be viewed compared to other currencies. Most Forex experts tend to agree that in the time leading up to the Brexit referendum we should see a weakening of the British currency. The actual decision might not have as much of an effect as one would assume.
Of course none of this is cut-and-dried since there are also other experts that feel the exact opposite will happen. It's a bunch of traders and analysts, of course they're not going to agree on anything, right? That's why no matter what you trade, you can always rely on someone taking exactly the opposite position in the market. This uncertainty will most likely lead to the market falling for a while and as a trader you have to bear this in mind – no pun intended, I think.
Sudden Drops Might Occur
The drops could be significant, but minor ones are basically guaranteed. Whenever there is a referendum of this nature, the market is going to be impacted and there is no way around this.
Previous Example of Similar Referendum and Its Impact
Maybe we can get a better idea of what will happen by looking at previous similar events. What has been seen in the past? A good example can make it easier to pinpoint what might happen in the Brexit case.
The Scottish Referendum was held a few years ago (2014) deciding whether Scotland should become a separate nation or not.
The impact led to a significant drop for a month. There was a 136% decrease in the currency, but it bounced back as soon as everything settled down again. The same should be expected this time around as the market looks to stabilize itself (2).
If the vote does cause the currency to plummet due to an “exit” vote, the results might be increasingly worrisome and might last much longer, since the Scottish Referendum ended up working out on a more positive note as Scotland didn't separate itself.
Will the same remain the case with the UK? Will they separate themselves from the European union? There are numerous variables at play and I'm sure it will lead to vigorous debates over the coming days. Each of those debates and news discussions could impact the market, so be on the lookout for news events.
Tips For Managing Trading During The Next Month
So, what can a person do who is looking at managing their trading over the next few months? The goal is to remain vigilant and keep a lookout for sudden market movements. This is something you should always be doing, but it becomes significantly more important during times like this.
Don't waver from your long-term trading plan and your regular setups. You want to avoid being suckered into the ups and downs of the market. You should be benefiting from the movements, it should not clear out your account. You want to remain steadfast and make slight tweaks to your trading strategies, if anything.
If you don't have a trading plan or any type of strategy, then you definitely need to join a trading group where you can get proper training and join webinars with professional traders that can help you to not just manage during this volatile period, but also going forward. There is literally no better place that I know of to do that than Mike's Facebook Group. It is an invite-only group that will not only give you a great group of over 7,000 people that are all serious about trading, but you will also get daily trading signals and amazing trading in their webinars!
The Brexit referendum is something the Forex trading world will have to digest over time and grapple with to properly understand the full impact. Do not brush it under the carpet and do incorporate the changes into your trading approach and general mindset.
Those who are organized will never struggle even if the market is showing significant fluctuations.