The US Presidential election is finally upon us. Traders should be braced for volatility in the marketplace for the remainder of the week. While the stock index futures market is still just slightly below our all-time highs, this may not continue to be the case once a winner is declared. However, we do not know when that winner will finally be declared. Considering this has already been one of the most heated elections in history, it wouldn’t surprise me if it was much like Game 7 of the World Series. Or this could even play out to be another election similar to the 2000 Bush/Gore result. Luckily, most futures markets trade almost 24-6 and can be shorted just as easy as going long if you are looking to protect yourself from possible increased volatility.
While futures trading hours vary per product, most of the major futures markets that would be impacted during the election, have plenty of volume in the overnight sessions. These markets include the already mentioned stock index futures, and also include energies, metals and interest rates markets. Once a winner is declared, markets will likely react quickly to the long awaited outcome. This means traders can take advantage of the futures market outside of regular stock trading hours. We witnessed this particular scenario back in June with the Brexit vote.
Most of the directional change and massive market movement all happened before the opening bell the next day after Brexit. If you were just tuning in that morning, you completely missed the move. And these significant moves didn’t just happen in one market or asset class. Look at the US dollar, gold, or the 30 year bond futures. As the e-mini S&P 500 was tanking, other markets were taking off to the upside with just the same amount of fury. This very well could be a similar situation on this Tuesday evening during the US Presidential vote. This is an important trading opportunity for both initiating positions and hedging portfolios.
During these significant market movements, there could be notable opportunity to catch a forceful move in either direction. A benefit of trading futures is that regardless of the direction, up or down, you can make a trade to suite your needs. Often times, that is not the case in equity markets, especially during extended hours. In fact, most brokerage firms do not even allow traders to short during that time. While it may sound uncomfortable or un-American to short the stock index futures market, historically speaking, bearish moves play out much quicker than bullish moves in this scenario.
Whether you chose to trade futures during this historic event, or even sit on the sidelines, the expected volatility to enter the marketplace during this event is undeniable. The world is watching, waiting, and hoping to trade based off the outcome of the US Presidential 2016 decision today.
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