The Brexit vote from last year took a lot of people by surprise. After a couple months of instability, most worldwide stocks quickly recovered from the jarring decision from England to leave the European Union, but now that the details of just how the UK will split from the EU, these concerns are beginning to surface again. And this time, the impact will be much more permanent in nature. If you are a European based trader, or an international trader that focuses on the Euro economy, even if it is through trading of the euro or the pound in some capacity, you probably are going to have concerns about how the events of the next year or so are going to impact your ability as a trader to create a profit for yourself. Here, we will take a look at some of the current Brexit facts and rumors, and how they are most likely to impact you and your trading.
FACTS are HereThe Treasury chief, Philip Hammond, has said that if the UK leaves without any sort of set trade deal with the EU, it will need to turn to other markets to protect itself. If it doesn’t, there will be a need to shift the entire British economic model.
Another thing that has been tossed around is that the UK might cut their taxes in order to try and attract more businesses. Although this is a definite possibility, it’s not something that has come into play yet. Still, the fact that this could happen is something that will influence the value of the pound. If you trade in the Forex market, or focus on currencies in the binary options market, then you need to be paying attention to this.
RUMORS do Spread
England already has trade deals in place with the United States, and they are likely going to be the biggest contributor to the British economy, simply because of the sheer size of that economy and the previously existing relationship. If this transition is seamless, we could expect little to happen economically as the logistics sort themselves out.
However, the Trump Team has already shown its thoughts on existing trade deals like NAFTA, which President Trump has called the worst trade deal in history. While this is an exaggeration and while NAFTA does not directly impact trade with England, it does show that the U.S. is headed toward revamping its worldwide trade policies. It also could spell the potential for the U.S. to back out of existing relationships with the UK, and this does have the potential to negatively impact the British economy. If anything does change here, the most likely course of action is that deals would be renegotiated, and it is hard to tell just what this would mean for England. In other words, we can’t just assume a seamless transition.
The EU has already been playing with negative interest rates stemming from their Central Bank, and this has sparked a lot of controversy, but it has also shown positive short term results. If the Bank of England moves into this territory, we are not sure what to expect. Other central banks have shown that it can work, but the long term impact is really unknown. The UK interest rate currently sits at a record low of 0.25 percent, and negative or zero percent rates is a very real possibility. This is something that all traders in all markets need to keep an eye on. Brexit might be the thing that pushes the pound to the breaking point, and a negative interest rate, although something that is unwanted, might be a solution. Again, this is a speculation or rumor, but it could occur. If it happens and if all goes like it has in the EU and Japan, the immediate impact would be to raise the value of the pound and stabilize the economy. The long term impact is unknown.
Also, consider the fact that Bank of England Governor Mark Carney believes that there are greater risks to the European economy than to the British Economy. If this is indeed true and not just political rhetoric, the EU is going to be hurt even more than England once Brexit rolls forward.
Regardless of what happens over the next couple years, the Brexit procedures look like they will begin by the end of March 2017. Traders of all sorts should have their eyes on this because it has the potential to create a lot of economic opportunities moving forward. Short term traders, particularly Forex, binary options, and CFD traders, have the most to gain here because of the short term nature of their marketplaces. Here, no real ownership exchanges happen over assets and instead, traders can profit or lose based upon price movement. It gives equal benefit to both upward and downward movement, creating a very flexible structure in which to trade.
It also acts as a major case study for the future. Even after the Brexit crisis is a footnote in history, there will be economic lessons for traders to draw upon. How does an economy function when it completely restructures trade deals? How does a currency react to being separated from an entire continent of people? How do individual companies thrive or fail in the wake of something like this? As traders, we should be looking for opportunities for immediate profits from Brexit, but we should also be learning so that if similar situations do occur, we can apply our existing knowledge and create more opportunities for ourselves.
As a final note, even though Brexit is a major event, some of the lessons that will emerge here will have immediate application in much smaller ways to other trading opportunities. Finding these and capitalizing upon them should be one of your goals if you want to maximize your chances of success.