The outcome of the 2016 US elections could significantly affect the forex market. With Clinton and Trump currently leading the survey, it’s essential to examine what will happen when one is elected over the other.
Businessmen and traders are used to treating the election year as a time of uncertainty. This is especially true for countries under democratic or parliamentary governance, such as the US. Issues facing the nation’s economy often make their way in the presidential discussions. If you look at it from a trader’s standpoint, elections pose a looming threat to the stability of the market, especially since futures, equities, and Forex largely depend on the strength of the US dollar.
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Probable Effects of the US Elections in Online CFD trading
The impact of politics on online CFD trading is sometimes subtle and sometimes catastrophic. To understand how it can have such control over the market, you need to know the presidential election cycle theory.
The presidential election cycle theory is developed by Yale Hirsch, a market historian, back in 2004. According to him, you can easily predict market trend with the 4-year presidential cycle. What usually happens is that during the first year of the new president, there’s a weak performance in equities. In the second year, there will be a gradual increase in equity. Finally, in the third and fourth year, the returns reach their peak.
While the theory is sound, it’s still prone to being fallible. For example, in 2008, the fourth year of a presidential term, there was an annual decline in the economy.
Since traders have to examine all angles before they make a trading decision, it’ll help if they know what they’ll be getting into once a new president is elected.
Donald Trump and the Tax Revolution
Trump has hinted on proposing a “tax revolution”, which states that American business will have to pay a tax rate of 15%—a great drop from the current 35%. If he’ll be elected and he passes this policy, he will make a great impact on the trading market as it will surely rally a good value for the US dollar. On the other hand, this policy also means that corporate tax will be funded by tariffs imposed on other countries.
It’s clear that Trump is taking the path of “tickle-down” economics by boosting high earners and the bottom line corporates in the hopes to help those with lower income.
Hilary Clinton and Risk Management in Online CFD trading
Clinton has taken a softer stance when it comes to international trade. She is still keen on imposing tariffs on countries considered to be “currency manipulators”. Though, she did not mention which countries yet, it’ll most probably include China. Of course, if she gets elected, there will be a sizable growth in MXN/USD trade. Moreover, proposed reforms in the market have the higher chance of being passed.
Experts say that Clinton in the presidency seat is the best scenario for traders who are handling high-risk assets like equities.
The election is coming and coming fast, but for now, traders from all around the world are holding on to their seat.
Featured image: By DonkeyHotey (Hillary Clinton vs. Donald Trump – Caricatures) [CC BY-SA 2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons