What is the best way to trade Brexit?

The UK referendum can be traded, but according to Saxo Bank’s Head of FX Strategy John Hardy spot forex is not the place to do so. More of John’s research can be seen at Saxo Bank’s


Saxo on Brexit: The UK referendum is still tradeable

  • Brexit vote best traded via options; spot too dangerous
  • CHF, JPY pairs present the most interesting correlations
  • Referendum trade requires a high degree of experience
  • For more on the landmark UK referendum,
John Hardy, Saxo Bank

While the market for options in sterling exchange rates has almost entirely seized up, there are still ways to trade the UK referendum if one is willing to trade the vote indirectly through currency pairs likely correlated with the direction of the June 23 ballot.

The market conditions for trading sterling options over the June 23 referendum was at least somewhat orderly as recently as a few weeks ago, when polls seemed to consistently show a relatively wide margin of victory for the Stay vote.

Since then, however, a number of polls have shown a far higher risk that the UK will vote to Leave, the market has more or less seized up for sterling options, making it prohibitively expensive to trade sterling through options at this point.

We must underline that traders’ underlying assumption should be that trading spot directly is too dangerous to merit consideration over the referendum.

Perhaps most traders will want to remain sidelined until the referendum results are in and then look to fade the reaction (or possible over-reaction) depending on the vote. Regardless of the result, even if the market is moving very quickly, liquidity should return quickly and option implied volatility will be crushed back lower in the space of a few days and settle further over the next month.

Consider the traumatic experience of the Swiss franc revaluation in January of 2015 – an event that was very different as it was not anticipated by the market at the time and generated the largest move in modern market history for a single trading day.

In this article