September 17, 2014

How To Profit From The Scottish Independence Vote

We are now just one day away from the Scottish independence vote, with the result expected to be announced in the early hours of Friday morning.

In recent weeks the threat of independence has had a dramatic effect on the GBP, and it is likely to have a massive effect on all of the GBP pairs when the result is finally announced, regardless of whether it is ultimately a 'Yes' or a 'No' vote.

So how can you potentially make money from this Scottish independence vote?

Well if you are think that the Scots will end up voting for independence, despite all of the polls putting the 'No' vote slightly ahead, then you could simply go along to your local bookies or place a bet online because you can currently get decent odds of around 4/1 in some places (click here for the latest odds).

Alternatively you could make money by placing some binary trades on the GBP pairs if you are anticipating a huge gap up or a huge gap down after the result, which I think is highly likely.

To give you an example, if you look at the binary markets for the GBP/USD pair on IG.com, you will see that there is a weekly ladders market available where you can take a position based on where you think the price will be at the end of the week, which would be a perfect market to trade in this case.

Here you can place a bet on the GBP/USD being above a certain level at the end of the week, and some of the latest prices are as follows based on the current price of around 1.6300 (the market is settled at 0 or 100 depending on whether the outcome is successful or now):

  • GBP/USD to be above 1.6825:  2.7 - 15
  • GBP/USD to be above 1.6725:  7.5 - 20
  • GBP/USD to be above 1.6675:  10.5 - 23.1
  • GBP/USD to be above 1.6625:  14 - 26.8
  • GBP/USD to be above 1.6575:  17.6 - 30.5
  • GBP/USD to be above 1.6525:  21.6 - 34.7
  • GBP/USD to be above 1.6475:  26.1 - 39.4

So if you think a 'No' vote is likely, you might want to consider betting that the price will be above 1.6475 or 1.6525 at the end of the week by buying at 39.4 or 34.7 respectively.

The quote for 1.6525 looks most appealing to be because I can see the price rising comfortably above this level and a profit of 65.3 times your stake with a risk of 34.7 is a pretty good risk-reward ratio (this is not a recommendation, it is just my own personal opinion).

However if you think it could bounce back towards the 1.70 level, for instance, then you can get even better odds because a £1 bet on the price finishing above 1.6725, for example, would give you a profit of £80 with a risk of just £20, whilst you could win 85 times your stake if you bet on the price to finish above 1.6825.

If you are of the opposite opinion and think a 'Yes' vote could materialise, then you might want to look at IG's monthly one-touch market for the GBP/USD pair because they have some fairly attractive prices available should this happen:

  • GBP/USD to touch 1.6000:  29.8 - 49.6
  • GBP/USD to touch 1.5950:  22.9 - 42
  • GBP/USD to touch 1.5900:  17 - 35.5
  • GBP/USD to touch 1.5850:  11.9 - 30
  • GBP/USD to touch 1.5800:  7.7 - 25.4
  • GBP/USD to touch 1.5750:  4.3 - 21.7

I think all of these prices could potentially be taken out before the end of the month if the Scots vote for independence, so I would probably be inclined to take one of the quotes for 1.5750 or 1.5800 to be hit.

However it ultimately depends on which way you think the vote will go.

If you want to hedge your bets, you could always place two binary trades, once in each direction.

For instance you could buy at 34.7 for the price to finish above 1.6525 at the end of the week, and buy at 35.5 for the price to hit 1.5900 before the end of the month as this would still leave you with a healthy profit if just one of these two things happened.

Anyway I just wanted to share with you a few ideas as to how you can potentially make money from this historic Scottish independence vote. Whatever happens, it's likely to be an eventful few days.


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