GBP: How to trade the big flow events such as today’s M&A flow

The entire FX market (and their Grannies) seem well aware that there is a big M&A deal going through between Verizon and Vodafone and the second tranche of GBP/USD demand is expected at today’s London Fix. Dealers will be trying to position themselves long going into the Fix and if/when the price is jammed higher by a sudden huge demand, they then can book an ‘easy’ profit. Looking at what happened on Friday, there was nothing easy about it.

The interbank market needs to be very careful in today’s environment about how it positions itself prior to these well-chronicled events so as not to be accused of price manipulation. That leaves the professional speculators and the retail market to try and trade it. Obviously the former have better information and better market access and they can trade these events better that the retail trader.

Those who try and buy too early risk getting stopped out by targeted pushes lower so the best policy in my opinion is to wait for any cynical dips (like we saw last night to 1.6580) and buy into weakness. Don’t be greedy, take the 80/100 pips on offer once the next batch of hopefuls start buying again- rinse and repeat.

And most importantly, be sure to get out of the market around the Fix time as it could get very nasty indeed.

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