2016 has seen a lot of important, influential elections. First came UK’s historic Brexit vote, then came the controversial US presidency. Most recently, Hong Kong saw its Legislative Council election, France has undergone its presidential election and Holland is set for its General Election in March 2017.

All of these elections have a massive potential impact on the economy. What’s more, the results also play a huge role in the trading market. So how exactly have the recent elections impacted the market?

Elections and their ripple effect on trade

Elections have a massive impact on trade. As a general rule, if the market is down and there’s an upcoming election, voters will usually lean towards a new candidate rather than keeping the same one in office. This is because traders in general hate uncertainty. This has posed a very big dilemma in the US for example, where voters have had very little confidence in neither Hilary Clinton nor Donald Trump.

If there’s uncertainty, people are more reluctant to invest their money in the markets due to the fear of it crashing. Similarly, if the result is unfavourable, such as the recent Brexit vote in the UK, it initially causes a drop in trade. The UK pound became much weaker after Brexit, as the economic uncertainty of the decision settled in. The same thing happened after the US election, the USD became weaker causing a great deal of activity in the forex markets

It's mainly currency wars which begin after elections. Whatever the outcome, the currency of the country holding the election will be effected, whether that be it increases or decreases in value. In order to trade confidently, it’s important for traders to keep an eye on pre-election polls and gather as much information on how policies and the economy would change if specific candidates were to win. This is incredibly difficult to do and enhances the risk involved with trading in currencies.

Of course, it isn’t just elections which cause the market to go into chaos. War and natural disasters can also play a huge part. The main thing to remember is that any dramatic changes which occur directly after an election result are usually only temporary. Fear drives decisions in the early days so you can expect to see a lot of changes occurring as a result. Sometimes it’s better to hold off if you’re unsure, but if you’re smart and do your research there’s the potential to cash in on great trade price opportunities.

Overall, elections do have an impact on the market. Pay attention to the coverage and polls to determine whether that change is likely to be negative or positive. This will help you to make a much more informed decision on when and where to invest your money.

Taking the time to research and become more knowledgeable about each election and how it will likely affect the market will pay off in the long-term.