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Screenshot of a breaking news alert e-mail from Q2 2017
Brexit, Brexit, Brexit…. As next Thursday’s vote gets closer and the outcome of the UK referendum still seems uncertain, it has been impossible to avoid the topic of Brexit in virtually every form of media.
On this morning’s FT.com home page alone you can read Blue-chips threaten Leave camp over logos, or Next steps after Brexit, How would the City fare after Brexit?, Citi executives holidayed amid Brexit frenzy, or the most popular post of the day Britain should vote to stay in the EU…
Are investors and brokers overreacting?
LeapRate spoke this morning with Richard Perry, Market Analyst at Hantec Markets, to see what his 15 years of experience working in the city of London have to say about the current situation, and what might be ahead in the next week for traders.
LR: Hi Richard. It seems like you can’t open up the financial news without seeing Brexit-this or Brexit-that plastered all over the place. Are we too Brexit obsessed right now? Is Brexit, whatever way the vote goes, less likely to affect financial instrument prices than we all seem to think?
Richard: Financial markets always fear the unknown and uncertainty will always create volatility. It seems increasingly that almost every opinion poll is being leapt upon and with such high volatility in addition to lower liquidity, means that markets are extremely jumpy. This suggests that Brexit is seen as a considerable problem for traders and whichever way the vote goes, the markets will react with enormous moves.
LR: Given all the confusion, are you seeing retail traders backing away from taking positions this week despite all the juicy volatility? Or are they embracing the trading opportunities out there?
Richard: Traders seem to be moving with a much shorter term time horizon, taking advantage of the intraday volatility which has tended to shift sentiment so drastically. Sterling traded volumes have been lighter across the market with the lack of certainty meaning that traders are discouraged from taking a definitive view.
LR: Other than using less leverage in their trading, what should retail FX and CFD traders be doing differently right now?
Richard: Hantec have already decided to reduce the leverage of clients in the week of the vote and this will help to protect not only clients but also the company from shouldering huge losses. The main aim is to avoid another SNB incident. Because it is such a binary decision (ie. In or Out) which will drive markets either strongly higher or strongly lower, it is dangerous to hold trades open over the night of Thursday 23rd June. I would say be mindful of the risks of trading sterling and UK assets.
LR: What happens, in your view, to the online trading industry if the Leave vote wins? What other changes are lurking out there which we might not be thinking of if Leave prevails.
Richard: The fact is that no-one from the Leave camp truly knows how the country will be set up in the wake of a Brexit and that is half the concern of the markets as the polls get ever tighter. Market uncertainty could drive huge volatility and the need for brokers to maintain reduced leverage/increased margin requirements. The prospect of different industry regulations could be an issue further down the road.
Hantec Markets has more information on Brexit, accessible here.