At the beginning of this week, global stock markets soared in response to a set of poll results released this weekend that gauged British support for the U.K.'s exit of the European Union, or "Brexit". In the results, the camp that is in support of the UK staying put was in the lead, marginally, over the "Leave" side. This subtle change in the world's perception of the likelihood of "Brexit" caused waves in financial markets across the globe. On Monday, the Stoxx Europe 600 rose 3.6%, which was its largest gain since last summer. The Nikkei 225 Stock Average, Japan's leading stock index, rose a comparable 2.3% over the course of the day. The Hong Kong stock index rallied 1.7%, rounding off growth in Asian equity prices. In the United States, the Dow Jones Industrial Average rose 0.7% and the S&P 500 a similar 0.6%. Additionally, the British pound had a spectacular performance in light of the new poll results; it rose 2.4% to $1.4700, producing one of its best days in years.
Following the close of markets on Monday, however, the prospect that the U.K. will most likely stay in the Union has not remained certain. Later in that same night, an evening poll conducted by YouGov ceded the lead to the "Leave" side 44% to 42%. But the same night saw the results of an ORB International phone poll, which yielded a 2% lead of the "Stay" camp at 49% over 47%. The uncertainty present in the polls themselves begs the question, why did this past weekend's seemingly insignificant poll results so dramatically affect financial markets around the globe? The answer is not obvious, but one Danske Bank analyst attempts one well by claiming, "This rally has just underlined how very nervous markets are."
Fortunately, that nervousness of the markets can be used to the advantage of a retail investor. For the purposes of speculation, the average investor can certainly express her/his personal view on the likelihood of "Brexit" in order to churn a profit. If an individual, for example, believes that the UK will inevitably leave the EU, they could take a short position in the FTSE 100 index, which is composed of the 100 largest British companies by market capitalization. The option to do so, through selling call options or buying put options on the index or short selling FTSE futures, is not readily available to the retail investors, however. So in order to profit from the materialization of "Brexit" and the supposed-consequential fall in the FTSE 100 index is through inverse ETFs or short selling stocks of large companies, such as HSBC
