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Trading the BREXIT
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!
Enjoy your weekend!