Trading the US Election? Here’s What You Need to Know

Trading the US Election? Here’s What You Need to Know

With just five days until the U.S. election, markets are bracing for a volatile week. The uncertainty surrounding the election, combined with the ongoing impact of COVID-19, could lead to significant market fluctuations. Here’s what traders need to keep in mind as they navigate the uncertainty in the days ahead.

Election Day and Potential Volatility

The U.S. election will take place on November 3, but there’s a chance that President Trump could contest the results if he loses, potentially leading to increased market volatility. Traders should be prepared for swings in market sentiment, particularly as election results come in and the race tightens.

Widening Spreads and Increased Costs

During major market events like the U.S. election, spreads (the difference between bid and ask prices) are likely to widen due to the higher volatility. This can increase the cost of entering trades and impact stop losses and take profits.

• Market Behavior: Like during NFP releases, liquidity may be lower, leading to more erratic price movements.
• Impact on Trades: Traders could see fluctuations in currency pairs as the vote count progresses. Holding trades past market close on election night may also result in triple swap charges.

Circuit Breakers Could Be Triggered

If the election leads to significant market drops, circuit breakers designed to halt trading may be triggered. These safeguards are typically activated when the S&P 500 drops by 7%, 13%, or 20%. While circuit breakers likely won’t affect CFD markets, they may still lead to increased volatility, causing large spreads and disrupting trading activity.

Volatility Brings Both Risk and Reward

While volatility can present lucrative opportunities for traders who can navigate the swings, it also comes with significant risk. Large price movements combined with wider spreads can result in substantial gains, but they also open the door for substantial losses.

• Risk Management: Ensure you have a stop loss in place to limit your risk and take profits set to avoid unnecessary losses during erratic price movements.

Key Takeaways

• Spreads Will Likely Widen: Expect higher trading costs and potentially more erratic price action.
• Circuit Breakers Could Be Triggered: Keep an eye on U.S. equity indices for any trading halts.
• Volatility Means Risk: While there’s potential for big gains, make sure you’re managing risk with stop losses and realistic take profits.

As markets react to election results and any potential disputes, traders should prepare for a bumpy ride. Keep updated on election news and be ready for the unpredictable market swings that are likely to follow.