The UKs withdrawal from the EU is just over a month away. Over the next few weeks, eyes will be on Theresa May as she attempts to make changes to the Brexit deal MPs overwhelmingly rejected. While a referendum or extension to the deadline to exit the EU is possible, its unlikely.
So what does this unpredictability mean for your investments? Markets dislike uncertainty. All markets are affected in different ways by global events which can trigger an increase in volatility. Understanding how volatility works and what it means for the markets is important in helping you make smarter investment decisions.
One of eToros Popular Investors Wayne Ryan (@goodgoing), who specialises in forex and trading against macro announcements, discusses his experience during times of uncertainty.
76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
This is not investment advice.
1. What would you say are the most important principles to bear in mind when trading during times of enhanced volatility?
Trading volume can increase substantially causing price to move quicker and more erratically. Price can quite easily move out of the normal daily range by several degrees. One of the most important things we can do is use low leveraged trades, whatever the strategy may be and never over commit your account balance.
Big moves can be disastrous when it comes to over-leveraged accounts. Study the entry and exit levels beforehand and have a clear plan of action. Whatever your strategy.
2. What lessons from past events can we use to help prepare for upcoming volatility?
First of all you need to decide if you want to trade the event in the first place. This will involve a consideration of all open trades and a decision on how you want to approach the event. You need a plan and a strategy to execute that plan. Whether thats closing out positions and/or taking the account flat (to cash) before volatility occurs.
If I decide to trade an event specifically then I always start off with my charts first. I want to identify which key levels of support and resistance are important. I will look at previous events that have caused volatility and compare them from technical and fundamental viewpoints.
For example, before the Brexit referendum of 2016, I looked at how low Sterling went against the US Dollar when we dropped out of the Exchange Rate Mechanism (ERM) in 1992. It was identifying those historic low levels that allowed me to successfully trade the referendum.
I closely follow the charts and I will already have an idea of where I want to buy or sell marked on the chart. I tend to manually trade as opposed to use preset orders because prices can quite easily jump during volatility. I will also have a set amount in mind before opening any trades. This will include a consideration of amount I am willing to lose also. Important when setting your stop loss.
76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
This is not investment advice.
3. Will you be trading more or less frequently in the run up to Brexit on 29 March 2019?
I dont think this day will be the same as normal time sensitive trading events. Decisions are being made now and indeed after that date. I think the volatility will occur in the days before as deals are brokered and agreed. So my trading will increase during the run up to the event.
4. What adjustments will you be applying to your trades in light of Brexit?
I mainly trade forex, specifically GBPUSD. I actually found the referendum easy to trade. I had a clear view that the leave campaign would win, but I also had a clear idea that price would fall as a result. The trading decision was simple: sell.
I have found the aftermath more difficult to trade due news driven uncertainty. However, the devaluation in the pound makes trading a little easier in that the range has narrowed. Real adjustments. Closely following price action on the chart and keeping abreast of all news related to Brexit.
76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
This is not investment advice.
5. Which industry (or market) will benefit the most from Brexit?
The global economy is growing and the UK will be suitably equipped to take full advantage of the new trading relationships with both the EU and our new partners around the world. With a devalued currency, low inflation and close to full employment, these strong fundamentals can only bolster the GBPUSD, offering UK goods a competitive edge abroad.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. Your capital is at risk.
