Retail traders have been looking to follow the lead of hedge funds this week and capitalise on wild swings in the value of the sterling, sparked by the government’s tax-cutting mini budget.
Some of the UK’s top retail investment platforms have reported a surge in activity as investors shorted the pound and looked to profit from the volatility caused by Kwasi Kwarteng and Liz Truss’s fiscal plans.
“This week has seen a significant pick-up in trading volumes around the pound,” Josh Mahony, Senior Market Analyst at trading platform IG Group told City A.M.
“Friday’s budget caused a notable increase in GBP trade volumes, with the number of trades executed on EURGBP and GBPUSD double that of a typical day.”
IG Group hurried out a how-to guide for retail investors to short the pound on Tuesday amid a frenzy of trading.
The interest comes as a crop of hedge funds have raked in cash by shorting the pound and betting against government bonds ahead of the chancellor’s tax-cutting plans. Brexit-backing fund manager Crispin Odey described his bets against UK gilts as the “gift that keeps on giving”.
Retail traders have also been looking to shore up their investments in the stability of gold which climbed to near-record pound prices in pounds last week.
Gold brokerage BullionVault saw British users open accounts at more than double the usual rate this week.
“We’re seeing a lot of new UK interest,” Adrian Ash, head of research at the firm, told Bloomberg. “The interest rate and inflation crisis is global, but gold is saying that the UK has put itself right in the eye of the storm.”
The surge in interest from retail traders comes after months of elevated retail trading volumes in FX and commodity markets, as investors have shunned equities amid extreme market volatility in the wake of Russia’s invasion.
“We have definitely seen more retail involvement in the pound. But across the year, if you look at the two asset classes that have been attracting the interest, commodities and currency is where the action has been,” Ben Laidler, global markets strategist at eToro told City A.M.