GoBearTV Ep 24 | Know the Market Forces at Work


A volatile market is inevitable. With various market forces at work, how does one identify and be prepared for moments that move markets? In this episode of GoBearTV, we’re chatting with CMC Markets’ analyst Margaret Yang to understand what market-defining moments are and how traders can stay ahead. Hello Margaret. Hello Garima. Can you just help me understand what are the recent market movements that we’ve seen? Well, the most iconic market movements I can recall are the EU Referendum back in June 2016 and also the US Presidential Election, the latest one, in November of the same year. So during those two days, markets suffered huge volatility and we saw that sterling tumbled over 12% in the same day and the US futures tumbled more than 5% during Asia trading hours. So these two scenarios were never seen for the last decade, and it was probably a once-in-a-decade opportunity for many traders whereas the rest lost their entire portfolio because the volatility kicked them out of the market. So what was it like over here on the trading floor during that time, seeing it all happen real-time? I can still recall what happened in June 2016 during the EU Referendum. The result was totally unexpected by anybody and the investors globally were just panic-selling their sterling, and because there was suddenly so much of uncertainty surrounding Brexit and also the EU and UK’s future, everybody seemed to be selling sterling at one moment. And when the currency market suffers such huge volatility, the selling force can become self-reinforcing. So initially, the speculators were selling, after that more people came in and took the opportunity to sell off. However at the same time, on the other side of the trading, those people who were taking long positions on sterling, who were buying sterling, they were forced to close their positions, so they also went in to sell. So everybody in the market was selling, and that resulted in a 12% drop in sterling versus the US dollar. Let’s talk a little bit more about the US Election. Donald Trump was elected to become the president of the United States. This outcome was totally unexpected by many people, and because the result came out during Asia trading hours, we saw that the futures of S&P, Dow Jones and NASDAQ tumbled as much as 5% during Asia trading hours. And it even triggered a circuit breaker by the futures exchange because this kind of movement is very unusual, so they had to stop trading for a short period of time. Till now, today, I think Donald Trump still has a very big influence on financial markets and even his Twitter will affect the movement of US dollars as well as crude oil. He has started a trade war with China, which led to global sell off in equities and risk assets from May 2018. And still now we are facing a lot of political and foreign uncertainties because of Donald Trump’s presidential election. So that is the most significant political event that moved the market in recent years. So, of course, as you said, some people lost a lot of money. So how can traders protect themselves from such losses in a volatile market? Well, in CMC Markets we offer a very unique tool to help traders mitigate such huge downside risks, which is called Guaranteed Stop-Loss Order or in a short form, GSLO. This order, once placed, will guarantee that the client’s position will be closed at a specific, pre-described level. So no matter how much the market is moving, or if there is a gap up or down, there will be zero slippage and your order will be guaranteed to be executed at the set level. So the guaranteed stop loss is a very important tool for traders to mitigate those downside risks. But of course the GSLO comes with a premium. It’s just like someone who is buying insurance. The GSLO premium will be fully refunded if the trade is never executed or the trade is withdrawn. It will only be deducted when the trade is executed at that level. So in the trading world, I think the traders should better manage their portfolio, balance the risk and return, and for those big political events, they have to be very clear of the upside and downside of their underlying tradable markets. And they need to analyse the potential best and worst scenarios and protect their positions from incurring those unexpected market volatilities. Thank you Margaret, thank you for your insights, it was great talking to you. Thank you. If you’d like to learn more about market forces or trading in general, visit cmcmarkets.com to find out about CMC Markets’ upcoming webinars and events. This is Garima from GoBearTV and we’ll see you next time.

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