Speculation, it's what markets run on

Today started in a panic as Cyprus announced a levy against depositors. The Euro fell against all major currency peers and the word spread of Cypriots rushing to ATMs to withdraw their money. At first glance it sounds bad, however the actual implications for global markets were more speculative.  The real cause of markets falling was contagion risk and the possibility of a run on the banking system in Europe.  

If you haven’t guessed it already, the markets are driven by human emotions not just the facts and the two most powerful drivers are greed and fear.  Today was clearly the latter and with a measured approach you could have capitalised on this. 

From my trading days, I learnt a few lessons about this, the futures markets are a constant battle against your peers, be it to be first in the queue on a certain price or strategies for obtaining profits. The psychology of investing plays a fundamental role and understanding how people react to news can help you make important decisions.

An overreaction to bad news is usually the case, and it is not until people weigh the news and data when a correct price is established.  As mentioned in buying on the dips, after major news, be it company specific or global, heavy sell offs present opportunities.                 

On the flip side, over the weekend, news emerged about a possible £8bn bid for M&S by Qatari Investors.  Subsequently the share price rose 7% on Monday and whilst there have been reports this is not true, it just goes to show the power speculation has. 

As the saying goes, “speculate to accumulate!”