Brexit is fast-approaching and carrying with it a dim outlook of job cuts and falling profits. Logically, investors, traders and companies flock to hedges as a safety nets, but that’s only half of the story.
One of the most popular hedges for a Brexit is to sell short the pound, and one of the most popular alternative hedges is to go along with the Swiss franc. This method is backed by a few currency strategists at major investment banks as they believe the Swiss franc, being a safe haven currency, won’t be down as much in the event of a Brexit.
Another phenomenon regarding Brexit is the fact that private exit polls are commissioned and the Out campaigns are backed by hedge funds and investment banks. This simple yet shifty strategy will net them £250 million a year if the U.K. leaves the EU.
But it all comes down to information. With the value of the pound sliding downward and the support of a Brexit moving upward, investors have been investing $35 billion this year alone in options that would net them a nice profit. But to do that, they need good information.
Sentifi – Brexit Widget
When Scotland was debating whether to leave the U.K. two years ago, hedge funds called pollsters and other sources to obtain the information they had found, then used it to set up private polls that would correctly predict the opposite outcome from what people expected ahead of the vote.
And they are doing the same thing this time. Many polling companies have reported they are getting phone calls and receiving high demand from private services on referendum day of June 23. By learning the result before it is made public, investors can have a head start before the market to maximize profits.
An increase in the number of Britons who do want to leave the European Union coincides with a double in the number of net short positions on sterling futures, from 32,851 contracts on May 31 to 66,299 by June 7, according to the Commodity Futures Trading Commission. In addition, computer-driven hedge funds also have accumulated very large short positions on the pound versus the dollar.
With the EU referendum nearing, more eyes will turn to the polls, and whoever gets the results first will be the winners of this event. Not the U.K.
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