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French election 2017: what can we learn from Brexit and Trump?

What can we learn from Brexit and the US election to help us trade the second round of the French election?

All trading involves risk. Losses can exceed deposits.
French flag
Source:Bloomberg

The second round of the French presidential election is next up in a series of key volatility events for the markets: a series that has so far seen the UK vote for Brexit and the election of Donald Trump as president of the United States.

A victory for Marine Le Pen over Emmanuel Macron could well set markets alight once again. So how did IG’s UK traders react to Brexit and Trump, and what lessons can be learned for the French election?*

Key markets in focus

In the 24 hours from 7pm on 23 June, almost 32% of all trading via the IG platform was on GBP/USD or the FTSE 100. In the 24 hours from 9pm on 8 November, over 28% was on Wall Street alone.

While both events had repercussions across a huge variety of markets, it was key currencies and indices that saw the biggest trading spikes. For the French election, that probably means the DAX, EUR/USD and the CAC 40 will see a flurry of trades as results come 7 May — especially if Le Pen fares well.

Certainty about Brexit was hard to find

UK traders were bullish on the pound right up until the moment results from Newcastle slashed the odds on a Leave victory, with 67% of GBP/USD trades in the two hours before midnight taking a long position. As the night went on, that swiftly reversed: in the next three hours 52% of trades were long, and by 3am sentiment had swung negative.

Before the result, many had turned to the markets for an indication of what was to come, but in the end traders were just as much in the dark as everyone else. And while the poor predictions supplied by polls may have been overstated in the months since, it’s worth remembering that little is certain when it comes to trading global events.

UK traders were more wary of Trump

Trump swept to victory as a divisive candidate, and in much of Europe his win was viewed with wariness. Which may explain why UK traders’ attitude to Wall Street remained bearish, even as global markets began to back the new president.

After dropping below 17,600 at 5am on 9 November, our Wall Street market embarked on a stunning rally that saw it end up over 1000 points higher 12 hours later. But despite the strength of that rally, IG’s UK traders remained largely unconvinced. Just 43% of trades on Wall Street during that time were long, and the bearish sentiment only increased over time: by 7pm that evening, over 72% of trades were negative.

Of course, in the long run the naysayers may be proved correct, and so far Trump has struggled to turn his rhetoric into action. But just because the result of the French election is viewed one way in the UK, doesn’t mean it will be everywhere.

Mobile is king

Flexibility is key to trading a volatility event. You never know exactly when results will arrive, making it hard to plan for every eventuality. On 8 November, news came in throughout the night — and the majority of UK traders took advantage via their mobile phone, not their desktop computer.

Across all markets, 57% of trades were made via an Android or Apple device from 9pm on 8 November to 9pm on 9 November. By using their mobile phone, traders were able to take full advantage of any market movements without staying glued to their PC overnight.

Whether the second stage of the French election rolls into the small hours remains to be seen. But as news hits before and after both votes, having the ability to adapt your strategy while on the move could be crucial.

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*All times are London time, trades are positions opened by experienced UK traders on our Android, iPhone or web platforms.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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