Could the current Brexit climate spell opportunity?

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Take a look at the current financial news and you’ll find ‘Storm Brexit’ is still causing many boats in the financial sea to rock with volatility. Take, for example, the aftermath of the most recent news that British Prime Minister Boris Johnson reached a deal with the EU. Nevermind all the hoops the deal must first jump through in order to take effect—the news of the deal itself caused a variety of shockwaves on the financial markets, showing up as volatility that may present a variety of risks as well as opportunities for certain informed traders who invest in price movement as Contracts for Difference.

In this Vestle article, we’ll take a look at some of the ways recent Brexit activity is producing the type of price volatility that has some CFD traders interested, as well as many educational resources offered on the Vestle site, designed to expand your knowledge of CFD trading.

Currency trading

For traders of two of the most commonly-traded forex pairs on the Vestle platform—GBP/USD and EUR/GBP—news of the mid-October Brexit deal stood out. Within minutes of the announcement, sterling had jumped up to almost $1.30 against the dollar—hitting a five-month high. However, as Northern Ireland’s DUP expressed doubts that they would reject the deal, sterling began a decline to below $1.28. The pound’s performance against the euro was similar, rising above €1.16 and then falling back to €1.1582, where it settled. 

As the performance charts will show, this type of behavior is common for sterling, which has previously risen when it looked like a Brexit deal was within reach. Seema Shah, a strategist at Principal Global said in a BBC article, “Sterling is giving us the clearest indication of market sentiment on Boris Johnson’s Brexit deal.” However, past performance and market sentiment should never be taken as reliable advice or a reason to trade.*

Economic Indices

One way investors gauge current economic health is by studying the performance of its key indices. In the UK, that means the FTSE 100 which, in the weeks leading up to mid-October’s Brexit talks, experienced particularly rough seas. Remember, this was when the country was anticipating a Halloween exit date. On the 14th—just days before the deal was reached—the FTSE 100 (tracked at Vestle by the UK 100) ended the day down -0.4% (33.63 points) at 7,213.45. How big a loss was that? This might help put it into context: the week before, the FTSE 100 climbed over 4% in two days after the Office of National Statistics revealed figures that allegedly claimed the UK was close to avoiding a recession this year.**

Commodities

If you’re a trader of commodities, things might not get interesting until after the Brexit deal takes effect. That is, if there is a deal, considering the 12th December General Election could make the first deal null and void, causing a no-deal Brexit to occur come 31st January. Either way, it’s still worth mentioning commodities due to the ongoing concern over how exiting the EU customs union will affect trade between the UK and the rest of the world.

At this point, there’s no way to speculate on what will happen. Under the terms of the new Brexit deal, the UK will leave the benefits of free trade behind after it leaves the EU customs union, making it immediately more difficult for goods to travel. And what with the complex bureaucracy involved in establishing new trade unions, things could take a variety of turns.***

The bottom line

Brexit continues to stir things up in virtually every realm of life, and only time will tell what happens next. In the financial world, this volatility brings with it risks as well as opportunities for informed traders. At Vestle, we offer hundreds of tradeable CFD instruments including currency pairs like GBP/USD and EUR/GBP, as well as top economic indices like the UK 100, plus a variety of educational materials to help you learn how to spot potential opportunities.

One of our aims is to increase your financial intelligence. Remember that all the scenarios we’ve listed above are just examples of how certain instruments have reacted to the ongoing Brexit situation. None of this past performance is any indication of an instrument’s future performance. However, you can use our assortment of charts, economic calendars and tools and features to gain valuable information from it. Access the Vestle trading platform anywhere you go with the Vestle trading app, available for iOS and Android.

The materials contained on this document have been created in cooperation with Vestle UK and should not in any way be construed, either explicitly or implicitly, directly or indirectly, as investment advice, recommendation or suggestion of an investment strategy with respect to a financial instrument, in any manner whatsoever. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 64% 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. Any indication of past performance or simulated past performance included in this document is not a reliable indicator of future results. Full disclaimer: https://www.vestle.co.uk/legal/analysis-disclaimer.html