Forex trade on the back of Brexit referendum results?

[rom1]

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 have a much more gradual impact?

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.

 

[Enivid]

Good question.

The thing with the referendum is that it is a long-term expected event with a rather predictable outcome. Unlike surprise central bank rate decisions or huge natural disasters, the results of the referendum will be known to the public beforehand through a number of opinion polls. The market will have enough time to react to the expected results with the price changes.

A different thing may happen if polls will be showing a 50/50 result, which will mean a lot of uncertainty. In this case, we might see a sharp rally/drop on GBP/USD when exit poll results or final results are announced.

Of course, some probability remains for the referendum outcome to be opposite to what has been shown by the polls and expected by the markets. In this case, we will also see a sharp price movement (probably in a matter of minutes) in GBP-pairs.

As a Forex trader, your plan should be based not only on what you expect the referendum results to be but also on how it will relate to the general market perception of those results. You can profit from the event if you for some reason believe that the outcome will be Yes, but the markets are expecting a No vote. In this case, selling GBP/USD beforehand will be a rational choice. Of course, you need some good reason to believe that the market is wrong and your forecast of events is true.

 

[rom1]

thanks! i guess if it was that easy, everyone would be doing it! there seems to be a lot that needs to be taken into account when assessing the relative strength of currency pairs, so will continue doing my homework.

 

[Enivid]

Basically, in any trading situation (as it is with this Brexit example), you have to believe to know something better than the majority of other market participants, otherwise you will have no edge as your expectations will already be priced into the market.

 

[jellyeb]

Basically, in any trading situation (as it is with this Brexit example), you have to believe to know something better than the majority of other market participants, otherwise you will have no edge as your expectations will already be priced into the market.

Its called go where smart money goes. Its not about acting against the crowd but be one step ahead of them. I know its difficult but still possible if you use all sources of information - technical analysis, news, fundamental knowledge etc.