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US presidential election

Find out what a Trump’s presidency could might mean for US economic policy, and how it could end up playing out across global markets in the short and long term..

With increased volatility comes increased risk, which IG will reflect with raised margins.

Why trade the election with IG?

  • Take a long-term view
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The result

Donald Trump has been elected president of the United States, and the Republican party has regained control of the House of Representatives and the Senate.

On 8 November, the former Apprentice star won the popular vote. The rest of the process is a formality: on 19 December, the 538 members of the Electoral College will meet to vote, and on 5 January 2017, the new president and vice president will be sworn in.

Of course, this will just be the beginning, as Trump begins to enact his policies and global traders unpick what they mean for the markets at large.

A closer look at Congress

Almost as crucial as who won the presidency itself was who would take Congress.

Had Trump secured the presidency but faced a Democratic majority in either the House or the Senate, he would have been hamstrung by an unsympathetic audience. Like Obama before him, he would likely have struggled to pass his more sedate policies, let alone his dramatic ones.

All predictions suggested that the Democrats would take the Senate, and there had even been growing optimism that Trump’s Access Hollywood scandal would lead to their taking the House. This, alongside the anticipated Clinton presidency, suggested a smoother future for Democratic policy. 

But the predictions were wrong. 

Donald Trump secured the presidency, and the Republicans regained control of the House and the Senate – even picking up a few seats along the way. This means Trump will have an easier time when it comes to passing new bills than his predecessor, which could add to market uncertainty if he follows through on some of his more outlandish policies. 

Of course, some of those policies may struggle to see the light of day regardless of congressional affiliation, simply due to budgetary restrictions. Likewise, motions that contravene Republican convention are unlikely to pass, as the GOP tries to maintain the tenets that have been upset by their nominee over the past few months. 

But certain areas which have never been popular among Republicans – Obamacare, funding for certain departments and initiatives – could well face swift dismantling. Trump’s determination to reduce domestic corporate taxes and inflict greater trade tariffs upon companies that have left US soil could also take effect sooner rather than later, a move which may see stocks suffer. 

For traders, this means major changes to US economic infrastructure and the uncertainty that comes with it. The Fed, too, is likely to have to react as a clean Republican sweep makes its mark, meaning closer attention than ever will be paid to future rate announcements and policy adjustments.

But even the possibility of a more amenable political landscape may be enough to see major indices and the dollar suffer. Whether or not Congress climbs on board with Trump’s stringent trade duties and debt-accelerating taxation policy, the very idea of it could be enough to keep markets in disarray for a long time to come.

How we got here

Having built a campaign upon incendiary promises, few expected Trump to gain the nomination of the GOP, let alone reach the Oval Office.

The first signs of success came in the primaries, when Trump’s popularity triggered speculation of a brokered convention. In reality, the Republican National Convention came to highlight just how vocal his support had become.

From then on, Trump’s campaign resisted every disappointment and scandal. His first debate, in which he focused more on mudslinging than policy, was widely seen to prove how far behind his rival he was. Faring only marginally better in the subsequent debates, the leaked Access Hollywood tape would seem to create a polling deficit too significant to bridge.

Significant events like these often coincided with marked changes in the value of our digital 100, reflecting our clients’ view of the way the election may go. For example, the digital 100 spiked when Trump’s poll numbers surged in September, but plummeted in the wake of the Access Hollywood scandal. 

Our digital 100s: how they work

Our US election digital 100 gave our clients the chance to take a position on who would win the 2016 US election.

Like all our digital 100, it presented a simple statement. If you believed that the statement would come true, you could buy the ‘Donald Trump (next president)’ digital 100; if not, you could buy the ‘Hillary Clinton (next president) digital 100. 

The digital 100 settles based on the outcome of the US election. If the stated outcome is correct, the digital 100 settles at 100, and if it turns out to be incorrect, it instead settles at 0. So if you bought the ‘Donald Trump (next president)’ digital 100, it will have settled at 100. If you sold it – or bought the ‘Hillary Clinton (next president)’ digital 100 – it will have settled at 0.

The digital 100 price reflects IG’s view on how likely it is the statement will occur, which is based on how our clients are trading the digital 100, as well as any polls, news, or other publicly available information. If ‘Donald Trump (next president)’ traded at 68/72, for instance, we believed he had around a 70% chance of winning the election.

Our US presidential digital 100 wasn’t our first political market, and many IG clients have predicted a healthy number of recent political events correctly. Some of their correct outcomes include:

•    Barack Obama’s victory in the previous presidential election
•    Boris Johnson’s victory in the previous London mayoral election
•    Scotland’s ‘no’ vote in the Scottish independence referendum

 

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The new president and their policies

Trump will be keen to gain traction on major fiscal changes as soon as he gets into office, including reduced Wall Street regulation, simplified tax brackets and scaled-down corporate duties.

Clinton transformed her policies in response to Sanders’ popularity, while Trump has historically focused more on disparaging his opponent than outlining his own plans.

How could Trump's win affect the markets?

Even with the rise of China and the growth of emerging markets, the US is still the economy that sets the pace for the rest of the world.

Now Trump has been voted in as the next president, what will this mean for the American economy – and what impact will his policies have on the markets?

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