Actually I didn’t want to jump on the BREXIT bandwagon but since a few of you asked me if I trade
the Brexit and if so how, I’ll let you know and give you a bit of a warning along the way.
There’s tons of traders out there on social media, blogs, trading sites and forum talking about how
they’ll trade the Brexit event, stay up over night and so on.
Now I’m not one of them. Actually the Brexit is one of the very rare events where I’ll be all flat
even on all of my trading systems. I don’t care about FED meetings, NFP numbers and any other major
events that occur on a regular basis so I consider myself quite brave when it comes to simply
ignoring any news.
If I’d trade the Brexit my plan would be to try to profit from the volatility (if it’s there)
trying to catch extreme moves in both directions as odds are things will go each direction a couple
of times on any little news.
But I’m not crazy enough to put on any positions. Events like the Swiss franc bomb from January
2015 where you can’t be sure if and where you get filled are my personal trading nightmare. All the
risk management you’ve done is meaningless because you don’t know where your stop-loss order get’s
filled and what your position actually is.
For those of you who’re still ready to gamble on, here’s a few things you should consider. What do
you think the liquidity will be tonight in the British pound (which is already quite low on a
normal day overnight) if the numbers tell us there’s likely a Brexit? If you’ll be long the pound,
do you have a stop-loss in place? Where do you think it will get filled? I have no idea, but
hopefully you don’t expect to get out at your stop-loss price. If you have a limit order in there
far away from market prices and you get a fill reported on your platform, can you be sure you
actually have the position? Or will the exchange maybe cancel it later on like it did on previous
“fat-finger” events for example? And if you then get out of your trade, thinking you’ll be flat you
actually might end up with a short position. I’ve seen exchanges and trading platforms stop working
because of “too fast” market conditions. You might not even get your fills reported back correctly.
So the main reason not to trade this actually isn’t volatility. It’s a lack of liquidity.
I wonder if those who’re bragging around how they’ll trade the Brexit have thought about this, or
have the experience to know such stuff actually can and does happen. I personally do everything to
avoid such situations, so I’ll just sleep during the night, take tomorrow off from trading anything
and hopefully the markets will be back to normal sometime next week!
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