Binary bet of the week: The Scottish Referendum Trade

By Dave Evans of binary.com

The Scottish Referendum Trade

With less than a week to go until the Scottish Referendum, the result looks to be on a knife edge. Or is it?

While recent polls have picked up on a surge of interest from the Yes camp, the betting odds have consistently put the No camp in front. The implied chance of a No vote from bookmakers and betting exchanges has not wavered below 65%, with the latest odds of ‘No’ success back up to 75%. The lowest odds on offer for a Yes vote have been 2/1, with 4/1 the typical average.

Odds are there to be beaten, so there is no guarantee that the betting markets are correct, but with polls subject to many factors such as self-selection bias, they have offered a more accurate take of probabilities over the years.

This is partly reflected in recent currency movements. There was a large drop in the GBP/ USD after the latest polls showed a ‘Yes’ surge, but has been moderated with movements throughout the week.

GBP/ USD daily chart

This sterling weakness has been exaggerated by continued dollar strength and if we look at the pound compared to the yen with the GBP/ JPY we can see that actually it’s been far from a disastrous week for the pound.

So it seems that financial and betting markets are still pricing in a victory for the No camp, but could the SNP still upset the odds?

Much has been made of the similarities with the Quebec independence referendum in 1995. This went right down to the wire, with half a percentage point ultimately deciding matters. This campaign too sort a late surge for Yes votes and a scramble by the establishment to turn the tide towards No.

While there are many similarities here, there is one crucial difference and that is the fact that Quebec wasn’t voting to remove itself from its ‘Auld enemy’. It was a pure vote of independence, of cementing different from the rest of Canada rather than of freedom as the Scottish campaign is playing on.

Another crucial factor is Alex Salmond. Love him or hate him there is no denying his skills as a politician and his close links with Rupert Murdoch could become a deciding factor.

The odds favour a ‘No’ victory, which is why the biggest reaction would come in the event of a yes vote. Given the recent strength of the US dollar, any upside for the GBP/ USD could be limited. A No vote could have limited impact, while a Yes vote could see the pound plunge to levels not seen in years.

With this in mind, it could pay to hedge your bets with an IN/ OUT trade. This means you are predicting that the GBP/ USD will go OUTSIDE of either of two levels. We can skew these levels, giving us more room on the downside and a nearer target on the upside.

An In/ OUT trade predicting that the GBP/ USD will touch either 1.6550 or 1.5300 within the next 7 days could return 125% if successful. Or put another way, betting that before the 19th of September the GBP/ USD will move higher and touch 1.6550 or plunge and touch 1.5300 could return £22.75 from every £10.00 staked.

In the event of a small gain for the GBP/ USD from a no vote, this trade would win and in the event of a huge plunge from a Yes vote, this trade would win. If the price does not move as far as expected, then the trade loses.

Disclaimer: This financial market report is intended for educational and information purposes only. It should not be construed as investment or financial advice and you should not rely on any of its content to make or refrain from making any investment decisions. Binary.com accepts no liability whatsoever for any losses incurred by users in their trading. Fixed odds trading may incur losses as well as gains.