Brexit: Should The UK Leave Or Remain?

On Thursday, votes from a referendum held by the United Kingdom to determine if it should remain or leave the European Union will be tallied. A referendum is a vote where those voting can answer “Yes” or “No” to a question, and the side that gets more than half of all the votes cast is considered the winner.

One of the campaign promises made by Prime Minister David Cameron if he won the 2015 general election was to hold a referendum. This was in response to calls from his own Conservative Members of Parliament as well as the UK Independence Party (UKIP). They argued that Britain had not had a say since 1975 in whether to remain or leave the EU. In 1975, they voted in a referendum to stay in the EU.

Over the last month, there has been a turnaround in the polls with the Leave side rising 10 points and the Remain side falling by the same amount. It will be interesting to see how it will all play out. Polls will be open from 7 a.m. (2 a.m. ET) until 10 p.m. (5 p.m. ET) Thursday. First results are expected just after midnight (7:30 p.m. ET, Thursday), with more results trickling in until final results come out around 7 a.m. (2 a.m. ET) on Friday.

Traders can expect a lot of implied volatility, which is expected movement built into the pricing. This has some Forex brokers panicking already, sending out warnings that should the market become too volatile, they will suspend trading.

A referendum of this magnitude will definitely affect the trading of the currency markets. Movement can be expected in the pound and euro markets as they are playing against each other. There are three markets directly affected by the pound: GBP/USD, GBP/JPY and EUR/GBP. Other markets, which are influenced by the euro and can be traded, are the EUR/USD and EUR/JPY.

Caution is required if trading any FX position in this type of situation. Should there be a great deal of movement as is expected, margin calls can be anticipated.

However, if trading Nadex spreads or binary options, the risk is defined and traders will never receive a margin call. Whether a trader chooses to risk $20 or $2000 trading EUR/GBP on the Brexit, that amount is the risk. It cannot increase.

There will be numerous ways to trade the Brexit, but the greatest imperative is to have defined risk. After the polls close and the results are tallied, the market will make its move. The media will have plenty of stories of traders getting margin calls and losing more than they should, but not if the trader took advantage of the defined risk found by trading on Nadex.