For those who are unaware, this Thursday the 23rd of June, the United Kingdom is having a referendum on whether they should stay in the European Union or leave it. Thus coining the term “Brexit” or “British Exit.” Whether the vote is to stay or leave, it will affect the market. No one knows what will happen to the markets as a result of the vote, but we can use events from the past to assume what will happen.
The closest event to the Brexit is the Grexit of 2016. This term was coined when Greece was deciding on leaving the Eurozone or not. As you can see depicted in the chart below, the height of the event caused the currency’s value to heavily gap over the weekend, then strengthen by 3 cents.
In the foreign exchange market, $0.03 is typically 300 pips, which would be comparable to a $100 stock that fluctuates in value by $5 a day to drop 15$ Monday morning and then close $15 higher than where it closed last Friday.
The currency pairs that will be affected are all Great Britain Pound pairs and potentially some Euro pairs. The pairs to watch out for are GBP/USD, GBP/JPY, EUR/GBP, GBP/AUD, GBP/CHF, GBP/CAD, GBP/NZD and GBP/NZD. Whether or not the decision is to leave the European Union, there are going to be some powerful moves in the market. The foreign exchange market always seems to go against the popular opinion in these type of events, so be careful when trading since an unanticipated event will rock the markets.
One thing that is different in the Brexit compared to the Grexit is that the Grexit was over-hyped. Nothing really happened during the weeks of Grexit and it still had a significant impact on the markets. No matter what happens, as long as you conduct your due diligence in the Brexit you can make money. The market will move, which will provide traders with profitable opportunities. However, if you are an inexperienced trader, the safest thing you can do is watch and trade on a demo account. Always utilize respectable risk management.