In or Out? Trump – The Effect on Online Trading

Online Trading

Many online traders using internet based platforms provided by brokers such as CMC Markets may be anxiously attempting to calculate the effect of a Republican or Democrat victory on the market. But as the temperature rises there is a strong and compelling argument for calm. Historical evidence suggests that the identity of the President of the United States has a minimal impact on your investments.

In June, Taylor Tepper wrote an article in Money magazine suggesting that the key to successful trading in such a febrile political atmosphere is “understanding that your emotional reaction to the election-not who actually wins it-is what truly matters”.

Research shows that our inherent political values and bias can detrimentally cloud investing behaviour. Our level of optimism is inextricably linked with our political values and affiliations that can lead us to make higher risk investments when our party is in government. Conversely, affiliation to a party in opposition can lead to a tendency towards more frequent trade of securities than when that party has been in power, with detrimental results to the portfolio.

Another trait of investment behaviour influenced by our political bias is often exhibited in our choice of stocks. One study in America found that fund managers who contribute to the Democrats tend to invest less in areas such as tobacco and the gun industry than their Republican-supporting counterparts.

In a volatile political climate, where pundits are also prey to their own political bias, avoiding making alterations to your investment strategy driven by emotion and the politicization of your portfolio can keep you on an even footing.

On June 23rd, the United Kingdom Brexit referendum result to leave the EU led to huge losses amounting to 3 trillion US dollars across the financial markets,and saw the pound plummeted to a 31 year low against the US dollar in the four days following the vote. By the June 29th, the pound had begun to rise again as the markets returned to growth.

The EU referendum gave rise to an obviously different but similarly bipartisan crucible of high emotion as being experienced in the USA currently. That would suggest much of the research into investing behaviour touched on above can be applied more generally for online traders. After all, politically charged rhetoric and market opiners delivering either/or options in simplistic terms are not new phenomena.

“Understanding that your emotional reaction to the election-not who actually wins it-is what truly matters”.

Tepper quotes Gregg Fisher of investment firm Gerstein Fisher: “I run a business, and I don’t think that my business will function differently if Hillary Clinton or Donald Trump is in office. You tell me what the regulations or tax rates are, and I’ll figure out a way to deal with it”. Businesses can adapt without major changes to investment strategy in times of political uncertainty.

Recent US polls suggesting that Donald Trump has reined in Hillary Clinton’s lead will crank up the tension in the financial markets, leading to more strident claims as to which candidate will capsize your portfolio in simple black and white. The ability to filter out this rhetoric will enable the online trader to make sounder investment decisions in the coming months.

On November 9th, there will be a lot of angry people, including many online traders. There will also be a slightly larger group of euphoric people, including many online traders. But evidence shows that stocks generally rise over time regardless of who is in power. Keeping control of your partisan emotions your portfolio may maintain an even keel in these current choppy waters.