Tips for trading the UK election
Tips for trading the UK election
Why trade the UK general election with IG?
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When is the next UK general election?
The next general election is set for 12 December 2019, following a vote of 438 to 20 in the House of Commons. Legislatively, the next UK general election should have taken place in 2022. This is because ever since the 2011 Fixed-term Parliaments Act, UK general elections must be held every five years, and the last election was in 2017. Because this election is being held before 2022, it is known as a snap election.
How to trade the UK general election
You can trade the election by speculating on markets such as indices, shares and forex pairs. The FTSE 100, GBP/USD and UK stocks all tend to move in the run-up to an election, and often continue to move in the fall out of the result – meaning there is opportunity to profit from the UK general election.
CFDs and spread bets enable you to profit from markets that are rising or falling during a UK general election. This is because with these financial derivatives, you can speculate on the price of an asset without taking direct ownership of it.
However, if you prefer to buy stocks outright, you can do so with our share dealing service. Owning shares enables you to profit from increasing share prices, as well as through any dividend payments issued by the company.
How can you hedge risk during the general election?
You can hedge risk during a general election by opening positions that will turn a profit if the assets you own start to lose money. With IG, you can hedge against:
We offer forex pairs including GBP/USD, EUR/GBP and GBP/EUR, enabling you to insulate yourself from currency risk.
Share portfolio risk
We enable you to go short on major indices and over 12,000 shares, so you can protect your entire portfolio from downside risk.
We’re the only provider to offer GBP/USD and the FTSE 100 on the weekend, so you can offset your risk whenever volatility arises.
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What traders should look for in the general election
General elections often cause increased volatility, and this election could be the most volatile in recent memory. Below are some tips for trading the December UK election:
- Watch the polls: The polls do not always get it right, but they are the best barometer to measure the public’s voting intentions. It is best to track as many polls as possible, because the findings from one can be very different to another
- Keep track of sterling: Sterling will continue to be influenced by Brexit during this election, but traders will also be reacting to which party will win – with pro-business parties likely causing sterling to rally, and pro-regulation parties causing a possible run on the pound
- Read beyond Brexit: While Brexit will be a main talking point, you should consider what each party will do domestically if it wins. You can do this by studying manifestos and the effect pledges – such as nationalising the railways – will have on the financial markets or those particular sectors
- Consider safe havens: Safe havens can help to protect you against increased volatility during the election. Assets that are often considered safe havens include commodities and currencies such as gold, the Japanese yen, and the Swiss franc
What might happen to the FTSE 100?
The FTSE 100 historically moves in the run-up to a general election. However, whether it gains or drops depends on the predicted outcome. For example, in 1987, the FTSE 100 gained 9.70% in the six-week period ahead of the election on expectations that Thatcher’s Conservatives would achieve a landslide victory – which she did.
The next election was in 1992, and it saw the FTSE 100 lose 4.90% in the six-week lead up. This was because many polls expected a hung parliament which increased market uncertainty – despite an eventual Conservative victory.
In other years, the FTSE 100 remained flat – for example, in 2015, it fell just 0.10%. This was largely on the expectation that the election would be the closest in history. The table below gives the full effect of general elections on the FTSE 100 during a six-week lead up since 1987.
Polls have predicted that the Conservatives will win the next UK general election, which could indicate that the FTSE might rise on the expectation of a certain victor. However, with UK politics as polarised as it currently is, and with public disillusionment growing, anything is possible.
|Year||Polling prediction||Winning party||FTSE 100 gain or drop|
|2010||Hung parliament||Conservative coalition||-8.15%|
|2015||Either party could win a majority||Conservative||-0.10%|
|2017||Conservative majority||Conservative coalition||+4.10%|
How could the pound move during the election?
Typically, GBP crosses including GBP/USD see increased volatility during a UK general election. For example, in the month leading up to the June 2001 election, GBP lost 3.52% of its value against USD. It eventually bounced back, achieving pre-election prices a couple of months later.
The same thing happened in the May 1997 election, which saw GBP lose 285 pips against USD on the day of the election before regaining 0.52% of its value the following month.
More recently, in the 2017 snap election, the pound fell in value against the dollar on the day of the election and continued to fall for a few days afterwards. However, GBP had recovered to pre-election levels against USD within a month.
Volatility in the forex market is common, especially when dealing the major pairs. Before taking a forex position during a general election, you should take steps to manage your risk.
Latest general election news
1Based on revenue excluding FX (published half-yearly financial statements, June 2019); for forex based on number of primary relationships with FX traders (Investment Trends UK Leveraged Trading Report released July 2019).
2Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.
3A premium is incurred if a guaranteed stop is triggered.
4 Negative balance protection applies to trading-related debt only, and is not available to professional traders.
5 Trading is available around the clock, apart from 10pm Friday to 4am Saturday and 20 minutes just before markets open on Sunday.