Tactical trading: Here's what traders will do during the General Election

 
Helen Cahill
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U.S. Markets React To Historic 'Brexit' Vote In UK
This guy did not see Brexit coming. (Source: Getty)

When Prime Minister Theresa May announced a snap General Election, everyone was pretty sure how things would go.

But the pesky British electorate has been defying political pundits once again over the past few weeks, making it increasingly difficult for traders to know what will happen after 8 June.

IG Markets has analysed the trades which took place in and around the Brexit vote and Donald Trump's election to try to provide some clarity, giving insight on when people will trade, what they'll trade, and how wrong everyone will be about the outcome.

Read more: More than half of European traders fear increased regulation

When will things kick off?

For traders, the action will start around 10pm when an exit poll is published. IG said trading volumes on financial markets are likely to reach a peak at 2am, depending on how clear-cut the exit poll is.

And, in the early hours, between 2am and 5am, most of the trades will take place on iPhones and Android devices. Around half of all trades placed during Brexit and the US election were made on mobiles.

Read more: Do you live in Britain's most adulterous constituency?

Where will the action happen and what will people trade?

The first markets traders will rush to as the results come in will be the Dow, the FTSE 100 and Germany's Dax. The Asian markets are likely to be overlooked, IG said.

Tesco, Barclays and Lloyds will be some of the most popular shares on the night. And, on the currency markets, the most traded currency pairs are likely to be GBP/USD, USD/JPY and EUR/USD.

Across the events analysed by IG:

  • 67 per cent of trades were on stock indices
  • 20 per cent were on currency pairs
  • Nine per cent were on commodities.

Expect some big shifts

Traders are terrible at predicting election results.

IG's data showed long or short positions on the outcome of an election normally flip more than 50 per cent as the results become clear.

On the day of the EU referendum, 56 per cent of GBP/USD trades were forecasting the pound to rise against the dollar. How wrong they were. The sentiment shifted dramatically when the results in Newcastle were far more pro-Brexit than people had expected.

Joshua Mahony, market analyst at IG, said: "The UK election is becoming increasingly interesting for traders, as the widely predicted landslide is becoming less and less likely, according to the polls.

"We are once again seeing a shift towards the aspirational (Brexit, Trump and Corbyn) and away from a promise of the status quo (Remain, Clinton and May)."

Mahony added economists will worry about Corbyn's spending promises.

"As any economist will know, a budget is all about balance, and for every promise Corbyn makes there will be an anti-business policy, which is far from welcome at a time when we need a more, not less competitive economy," Mahony said.

Read more: Bookies' odds on an overall Tory majority start to lengthen

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