AvaTrade - Analytics


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    London Bridge is Falling Down

    The Brexit vote took everyone by surprise…everyone perhaps, including the citizens of Britain. Neither hedge fund managers nor English bookmakers predicted the outcome of the vote.

    Who really had their finger on the pulse?

    Did people vote just for the shock effect, as some are claiming, and now they’re in shock at the effect of their votes? Is the vote binding? The petition for a revote already has hundreds of thousands of signatures; will there be a revote? Britain has a lot to grapple with as the rest of the world keeps its eyes on the markets. Regardless of the political reality, there is a financial reality to contend with now.

    The votes have been tallied and the results are in. The markets can now move on. Or can they?

    There are a lot of questions, and we know the markets don’t like uncertainty: Will the stock market recover from its worst session since 2011?Will the British Pound recover from the worst day in 30 years? Will the Fed be forced to table any plans for a rate hike in July and September? Will there be a domino effect of other nations leaving the EU? If the UK has an easy exit, the EU fears it will encourage other countries to leave too. They will therefore try to make the UK’s exit painful. Is the vote indicative of a return to the economic isolationism of a hundred years ago after so many years of moving towards global free trade with integrated financial markets?

    On Friday, fluctuations in currencies and commodities were off the charts, causing serious headaches for investors. Will this be a new trend, or will we soon be back to normal?

    Given the reality of Brexit:

    What should we as speculators and investors be doing? What strategies can we employ during market crises, to both protect our assets and reap the rewards of market volatility?

    As investors, we might not want to make any drastic moves over the next few days, rather we should be slowly accumulating attractively priced contracts. When the dust settles, take the pulse of the market, and go with the flow.

    As speculators, we can look at this as a golden opportunity to actively trade the market. Potentially, a lot of money can be made by selling the spikes, or buying the mini crashes. The markets will be subject to rumors and margin liquidations. A fleet-footed scalper could make some quick scores over the next few days.

    Is this the beginning of a complete collapse of our financial institutions as we know them? If so, the “safe haven” is the place to go. You might choose US treasury bonds and notes, currencies like the yen and the dollar, gold or Bitcoins as confidence erodes in government-backed currencies. Secondary effects would be weaker commodity prices to go along with the stronger dollar. Don’t forget, on the AvaTrade platform, one can go short copper, sugar, soybeans, etc., to take advantage of such a strategy. The price of natural gas would not be included in this group, because it is for the most part produced and consumed in the US and therefore, not subject to currency fluctuations like more international commodities.

    If you think that the Brexit vote was just a speed bump in the road, and Friday was just the beginning of tremendous opportunities, you should step right in and take advantage. Stocks should be bought. Currencies other than the aforementioned “safe haven” ones should be bought. Treasury securities, which are at previously unimaginable levels should be sold short. The yield, which is inverse to the price, is at 2.4%. Since 1900 the lowest it has been was about 2%. In 1981 it was over 15%, with short term rates even higher. If things blow over, and economic activity cooperates, this could literally be the sell of the century for Treasury securities.

    Whatever path you choose, your AvaTrade account must be well funded. We need an extra cushion to protect our open trades, and funds readily available to take advantage of surprise opportunities.

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