By Rob Colville on September 18, 2014 in
Today is one of the most widely anticipated days in the political calendar in the UK and it could mark the last day of the United Kingdom depending on how Scots decide, as they head to the polls to vote on whether they want Scotland to become fully independent, or remain as part of the Union.
Scottish Independence will change the face of the UK forever and will mark major constitutional change. But how will the markets respond to this?
We were given a powerful indication as to how markets would receive the prospect of an Independent Scotland supposing the “yes” vote wins overall majority in the referendum. Over the weekend on the 6-7th September, news that the “Yes Campaign” (favouring a fully independent Scotland) were in the lead ahead of the “Better Together Campaign” (favouring Union) for the first time ever rocked the markets.
On Monday 8th September, GBPUSD gapped down, falling in excess of 180 pips while the FTSE plummeted. Yet, the lead of those favouring independence for Scotland was by the slimmest of margins.
This gave us a clear clue into how markets could respond to the overall verdict, which will be given on Friday morning after counting tonight.
If Scotland does vote “yes” to independence, we can expect a fear-based correction in FTSE-listed stocks and Cable (GBPUSD) to fall significantly. After all, Scottish independence would be a “one in a lifetime” event. Markets don’t like such uncertainty.
If, however, Scotland vote “no” to independence and to remain an integral part of the United Kingdom, we can expect the FTSE and GBPUSD to rally off the back of this, as confidence will be restored to the markets with the continuation of the status quo.
We are currently short on the FTSE, as per our trade idea (published 30th August). Our order to sell at the pen-ultimate all time high (stop-loss 50 points above the level) was triggered on the 3rd September.
The trade since moved 100 points in our favour off the back of fears that the Scottish “yes” vote campaign were in the lead and made the trade a near rolling-gain of 4%. However, we have since seen retracement to around 2%. Our stoploss order is currently at “breakeven”.
Trading the Scottish Referendum: If the Scots vote for independence we can expect our FTSE trade to quickly extend its gains as the FTSE falls in response to this. If they vote to remain a part of the Union, we shall have our stoploss tightly trailed so that we can lock in profits even if the FTSE does surge to the upside.
Regardless how the Scots end up voting today, we will benefit from this trade with a profitable outcome.