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Brexit drives Forex robots crazy

Brexit drives Forex robots crazy

Erik Holm - Head of media

The process of the UK leaving the EU has already had several turns which makes it so complicated that it even stumps computer algorithms.

The Brexit failure has gone from a surprise referendum result to a political swamp that has threatened to bring down U.K. Prime Minister’s administration and cast a pall over Britain’s future. British Prime Minister Theresa May has already tried three times to conduct the agreement with the EU through the parliament. Three times she was defeated and now the risk of the country leaving the European bloc without a deal is higher than ever.

At the same time, Forex robots that are very popular in the international currency market are trying to cope with the analysis of the daily avalanche of news from the U.K. As a result, the speculative trading strategy of the pound sterling has become too risky. So we would recommend you to use only the best Forex robots.

U.K. government is split in its position on Brexit. So does the British Parliament. The number of people that could affect the dynamics of the pound with a word or even gesture involved in this protracted “divorce process” has increased significantly. This fact violates the usual work of Forex EAs as well as the work of manual traders.

Algorithms that “read” news headlines, analyze the background information, and then automatically make a trading decision are a new milestone in the development of automated trading. The problem is that Brexit is now forming an extremely large amount of news, so the trading robots are “dizzy”.

Reuters estimated that for several weeks it publishes about 400 news items per day that are related to Brexit. Before the UK exit from the EU became an obvious problem, the agency wrote about this no more than 15 times a day.

Other systems that analyze the market in different ways suffer as well. Both technical and fundamental analysis Forex robots feel bad about the unpredictable consequences of the political steps the U.K. government and parliament take.

Brexit makes the financial market’s life hard not only for speculators - but market makers are also affected. These are those market participants who provide liquidity at the sites. According to their status, they are obliged to keep two quotes: longs and shorts. They also use trading algorithms, but they fail to reduce the risk.

Some hedge funds have completely abandoned the rate of the pound sterling since the models that they usually use do not fully work in the current environment, Reuters notes.

As a result, the volume of trade decreases as the number of people willing to trade in British currency decreases. In February, according to CLS data, the daily trade turnover of the pound sterling was 65 billion. This is noticeably less than 100 billion a day before the Brexit referendum in June 2016.

At the same time, the volatility of the pound is near two-year highs. The indicator increased 3 times compared to the end of February. Although the volatility of other exchange rates declined markedly during this period.

The pound has depreciated by 13% since Britain voted for withdrawal from the EU. But the market does not know what to do next because it doesn’t understand what will happen next.