- US Election and the financial markets
- Where you should focus on during US Election period?
- How the markets react to US Elections?
US Election and the financial markets
With a U.S Election just around the corner, volatility is spiking higher, and uncertainty reigns over the markets.
Rest assured, many brokers listed on Hercules.Finance will continue to provide an uninterrupted trade service during this time and the best conditions possible to support your strategies.
Some brokers could expect to alter your margins and we would urge you to ensure that you have sufficient margin in your account to cover positions during the season.
There is a couple of things to note when trading a U.S Election in general.
Spreads are likely to widen
Market moving events such as NFP and Central Bank Interest Rate Decisions affect respective currency pairs significantly.
During these periods, liquidity might be low and possibly may force an increase in the spread.
During the Election, there is a high chance there will be fluctuations on who is currently winning the race, possibly whipsawing currency pairs as the votes come in.
This is important to note, as not only does this increase the cost of entering into a trade, but this may affect your stop losses and take profits.
Furthermore, if you hold your trade after the market close on Wednesday, MT4/MT5 time, you may be charged a triple swap fee.
Circuit Breakers may be triggered
You may remember, in 2020 when Coronavirus was slowly starting to pick up in the United States, the sharp market drops forced a halt in trading in equities due to the inbuilt Circuit breakers disincentivizing panic selling.
For example, circuit breakers are set to halt trading in the S&P 500 when there is an intraday drop of 7%,13%, and 20%.
During an election season, massive swings may force these circuit breakers off.
This is likely not going to follow through in the CFD markets – however, this may force massive spreads when trading.
Traders and investors should keep an eye out on the news during election day to avoid getting hit with high spreads.
Great Market Volatility
Volatility may provide great gains, but also great losses.
Many traders and investors enjoy trading wild swings because a lot of money can be made in a short span of time.
However, this also means a large amount of money can be lost in a short span of time.
Combine this with the potential for wide spreads, and investors and traders may be emotionally incentivized to hold onto trades to recoup the spread’s cost to break even.
It is essential to have a stop loss that mitigates your risk as much as possible, with suitable take profits to manage trades.
It will not be a surprise that volatility will increase on election day.
The only thing you can control is how you trade the volatility.
Will you take care of your risk?
Where you should focus on during US Election period?
We know that volatility presents an opportunity, and the Gold, Oil and Indices markets should react to the results, providing some great trading opportunities.
Make sure you’re ready to ride the US Election volatility.
Here are some aspects that you should focus on during US Election period.
- Electoral votes
- The election is not decided based on nationwide individual votes but is instead determined per state, whereby the winner of the state gains an amount of what is called ‘electoral college votes’. Candidates need a majority vote of 270 or more to win the election.
- Media Reaction
- States are often ‘called’ by media companies reporting on the results however it is important to note that these are projections based on initial figures and are not necessarily the final result.
- Manage your positions
- Manage your risks wisely and be prepared for increased volatility. Learn more about the importance of risk management in useful articles.
How the markets react to US Elections?
Here are things you need to know when trading around US election.
- USD volatility is likely to increase as investors react to the election results. In 2016, the US Dollar Index rose nearly 6 percent in the 2 months after Donald Trump was elected.
- Indices and Stocks
- There has been a common theme during US elections. The US500 has made election day gains of 0.38% (2016), 0.79% (2012) and 4.08% (2008). Volatility could result in a spike in US Indices with the US500, VIX and US Dollar Index all available to trade.
- Its safe haven aspect has seen it achieve record highs during Election seasons. Investors may again turn to Commodities such as gold, silver and oil in response to to the uncertainty surrounding the election period.