Brexit has sent shockwaves across Europe, with a lasting uncertainty over exactly what the future holds.
With the economy now in unfamiliar waters, what will be the impact on the global markets?
Impact on Forex Trading
Brexit was a huge surprise and had a great impact on both the forex and global market. This impact will most probably last for a long time. The uncertainty of what lies ahead will be surrounding the markets for months or even years to come. However, this kind of uncertainty is not new, it is continuous throughout history.
As ballot day was approaching, all the surveys were reporting that the “Remain” vote was dominating. Consequently, brokers issued warnings about margin levels being raised as well as the potentially high volatile trading conditions. The market actually stopped working for about 5 minutes. When live trading started functioning normally again, the GBPUSD spread was over 100 pips.
During the first reporting, BREXIT votes were in the lead. After a while, the votes were steadily rolling in and the markets began to digest the information while the spreads tightened to about
20-30 pips. The range of the 5-minute candles though was anywhere from 50-100 pips.
In other words, the spreads are normally 1-3 pips and the average range of a 5-minute candle during reasonable trading volume is between 7-15 pips. When there is volatility, there are great opportunities as well as risks.
Brexit and Currencies
After the initial shock, GBP fell dramatically and has been in decline ever since. In contrast to the USD, the pound dropped in value by more than 10%, which was the lowest point it has reached in 30 years. The pound is now a lot weaker compared to the EUR as well.
As the Prime Minister of the UK once mentioned, there will be no more trade talks with the EU. Unless there is a different approach, they will confidently follow the Australian solution. Boris Johnson’s negative attitude towards the GBP is clearly a drawback for the pound.
It goes without saying that investors want to profit off the forex market, so their outlook regarding a currency can have a negative effect on its overall value.
Brexit and Gold
Seeking a seemingly safer investment, as people became afraid of the financial trouble ahead, gold investments soared after Brexit. Following the referendum, there was an unprecedented interest in gold, as new, young and experienced traders invested sought to safeguard their financial future.
How to trade Brexit
Opinions vary regarding trading the markets during such a period of volatility. Some people claim that this is a one-time opportunity, whereas others prefer sitting back for a while until everything has settled down. Well, the answer lies with your own trading strategy and plan. If you choose to trade during times like this, you may experience great trading opportunities but you must be willing to take on greater risk of losing.
It is vital to manage the downsides as your main goal must be risk management. Sticking to your plan will help you understand that if something works for you then you can keep doing it, if not go back, improve and progress. Events like Brexit will keep coming every few years. You just need to always be ready.