Brexit remains the # 1 geopolitical issue for more than 3 years. He has had so many twists in the plot that his chronicles almost look like a television show … although nobody can stop watching it.
Let’s see how it all started, where it is going and how to use it to your advantage in trading.
What is Brexit?
Brexit is the acronym for British Exit (British EXIT) – the UK initiative to leave the European Union. The country joined the EU in 1973 and decided to leave in June 2016 after a public vote (referendum).
Why does the UK want to leave?
Supporters of the “Exit” scenario mention several reasons, such as the immigration problem, excessive bureaucracy, EU tariffs, etc. However, the main feeling is
“Decisions about the United Kingdom must be taken in the United Kingdom”
This is what 52% of the people voted in the 2016 referendum. And so it began.
The Brexit Agreement
For the divorce to be painless for both parties, the United Kingdom and the EU are expected to reach an agreement, which is a set of terms for the exit process that covers several issues:
- the rights of EU citizens in the United Kingdom and of British citizens in the EU
- how much money the UK must pay to the EU (divorce bill)
- support for the Irish border
What went wrong?
Brexit was planned to occur in November 2018, but it was postponed several times due to several inconveniences – mainly due to the backup problem.
The border between Northern Ireland (a part of the United Kingdom) and the Republic of Ireland (a free state) will be the only land border between the United Kingdom and the EU. Currently, there are no border posts or controls of people or merchandise that cross the border. Its status is crucial for post-Brexit commerce.
- The EU proposed “support” – a legal guarantee to avoid a “hard border” in case of a Brexit without agreement. This means a special status for Northern Ireland.
- The United Kingdom does not like this idea because a different status for Northern Ireland could threaten the existence of the UK.
Since the Irish problem is part of the exit agreement, it is one of the things that keeps blocking Brexit.
Brexit without agreement
Without agreement means that the United Kingdom would leave immediately without any agreement. The new Prime Minister Boris Johnson promised to leave the EU on October 31, with or without agreement. His opponents claim that a Brexit without an agreement would harm the country too much, so the whole idea is not worth it. This is what would happen right after a Brexit without agreement:
- Exit from the Single Market and the customs union
- Exit from EU institutions such as the Court of Justice of the European Union and Europol
- Termination of United Kingdom memberships in various EU bodies
- Suspension of contributions to the EU budget – around £ 9 billion a year
THE IMPACT OF BREXIT ON WORLD TRADE
This is what is glimpsed through the most dramatic changes in the case of Brexit.
- UK business partners
Countries that have deep commercial ties with the United Kingdom are the most vulnerable, especially Ireland, Belgium, Holland, Cyprus, and Germany.
The sectors that could experience the greatest impacts on exports are motor vehicles and their parts, electronic equipment and processed foods.
- Service sector
London is a global financial center – the service industry constitutes almost 80% of the total economy of the United Kingdom. Experts care more than anything about financial services and insurers.
- Commercial costs
In the most likely scenarios – either a free trade agreement (FTA) or a setback to WTO rules – the costs of trade between the United Kingdom and the EU will increase.
- Transfer and logistics
After the United Kingdom leaves the EU, it would no longer belong to EU tax legislation, which may mean double taxation for companies that transport products and services throughout the United Kingdom and the EU.
- Supply chains
The United Kingdom is big business in international supply chains, especially in sectors such as financial services, mining and chemicals, transportation, telecommunications, and wholesale and retail industries.
- World trade flows
As a member of the EU, the United Kingdom has dozens of free trade agreements with 58 non-EU countries. All these agreements must be renegotiated again.
In general, the most notable economic effect of Brexit will be the reduction of bilateral trade between the United Kingdom and the EU. This would lead to reductions in GDP and real income because higher trade costs would result in the less efficient flow of resources between industries.
OPERATING IN THE BREXIT
Since the United Kingdom is the first country to withdraw from the EU, it could be difficult for Forex traders to interpret events correctly and make good predictions. However, we have learned some lessons so far:
- Scenario without agreement:
If the United Kingdom respects the rules of the WTO, it will have an initial period until 2020, which will be a period of great uncertainty. This uncertainty will cause the GBP to fluctuate, which would make it an unreliable base currency for any match.
The costs of commercial transactions will increase with new tariffs for exporters. Companies that rely on EU-based raw materials and consumers will have to withstand margin cuts. This will have significant repercussions in the global stock and currency markets.
As for the shares, UK companies established abroad could have a higher return, while the shares of national companies could fall. If trade between the United Kingdom and the EU became too expensive, people would start a mass sale of shares.
- Scenario with agreement
GDP will eventually begin to strengthen, but the initial blow to the GBP rate is inevitable. The worst part is that no one can determine the duration of the recovery period and what new challenges it will bring.
Therefore, the main word to describe your trading opportunities with Brexit is UNCERTAINTY
Is this a good thing or a bad thing?
For the people of the United Kingdom and the European Union – not really. For traders, it is most likely a good thing – high volatility is always an opportunity for a trader.
Probably the actions of the United Kingdom, the GBP / USD and gold will experience the most significant movements.
To reduce losses and play safely, follow these simple instructions and get ready for Brexit:
- Follow our analysis and news about Brexit
- Set price change alerts that notify you about significant movements
- Use the Stop Loss AT ALL TIMES
- Stay alert and ready to make a move at any time