Why the UK Parliamentary Election Will Affect the Forex Market
Every time there is some change in any government, there will fundamentally be a ripple effect on the Forex market. The snap UK parliamentary election has just concluded, and the big question is, what does this mean for Forex and investments?
Let’s take a look at what has happened with the pound over the last few months. When the UK voted to leave the EU, there was a sharp drop in the value of the pound. However, there have been some signs of recovery, as over the past five months there has been an increase in the pound as it went up by 2.7%. This is very telling of the expectation regarding the UK parliamentary election. It means that the general belief is the status quo will not be changed significantly, and that parliament will do what is expected of them and follow instructions.
There is also the issue of Brexit that may be affecting the Forex Market. For now, one can speculate that the plan Theresa May has developed for Brexit is meeting minimal resistance and less scrutiny by parliament.
For those who have a significant amount invested in currency, especially the pound, a strategy needs to be formulated. This upward trend may be temporary in anticipation of the upcoming election. Now that there is a possibility that the economic data may change due to the election, a trader should brace themselves for a downturn that could occur.
In this strategy, a good trader will put a limit order in place, as well as a stop loss contract. With this, you will be able to cap the upper and lower ranges that you are comfortable to accept when you are trading. This will help protect any trader, especially if the pound should become weaker. Furthermore, if the market should suddenly become volatile, then your exposure to risk will be limited as well. Fundamental trading expert, Abe Cofnas shares how he is watching this important announcement in this video:
What Can You Do as a Trader?
Rather than automatically following the direction all Forex traders are going, you may actually benefit more from choosing the less popular options. The key to ensuring that you can weather any storm by choosing this strategy is coming up with ways you can manage your risks. No matter what the result of the UK parliamentary election, there will be a period of volatility. When everyone is following the same trend, it becomes more challenging to get a big potential profit, because too many people will be in the same pool. For that big payday, you may need to do something different, and go against the grain.
Traders who are focused on the London Session should place their attention on the majors which include the GBP/USD. This is down to the tight spread, which makes it much more predictable when it comes to evaluating a profit or less. For less volatility, it is best to wait and trade in the middle of the session since historical information reveals that volatility tends to go down before the New York Trading session begins.