Brexit Guide img

From no deals to second referendums, Article 50s to Irish border issues, Brexit has been in the news frequently over the last few months. That’s set to continue well into 2019 as the UK officially leaves the EU, but amidst the plethora of Brexit-specific jargon and the issues surrounding the departure, what does it actually all mean and how will Brexit affect trading? Here’s a definitive guide to help you dissect the chaos and get your head around the whole Brexit situation.

Brexit

What is Brexit?                

Brexit is an amalgamation of the term ‘Britain’s exit,’ which refers to Britain’s decision to leave the European Union (EU).

What is the European Union?

The EU is a geographical, economic and political union between 28 member nations, all of which reside within Europe. With its own parliament, the EU governs over certain aspects of its members’ societies. Leaving will give the UK more control over its own environmental and transport laws, which were previously heavily dictated by the EU. At the same time, the UK will lose the benefits of union membership such as being a part of the largest single market in the world. 

Why is Brexit happening?

Brexit is happening because of the 2016 referendum that was forced through Parliament, by where the British public were given the option to vote to either remain or leave the EU. A total of 52% of the population voted to leave, despite the ‘remain’ party being the strong favourite pre-vote, meaning the UK will leave the EU. The result was a huge shock, signified by the pound plummeting 10% in the immediate aftermath.

Why does Britain want to leave?

Reasons for wanting to leave vary from person to person, and of course 48% of the population voted to remain in the EU (although total voting turnout was 72% of the population). However, a lot of people were against the sovereignty of the EU, disliking the laws that the UK is bound by in being a member. As one of the largest members of the EU, some also believe that the UK gives more than it takes. Financially, this seems like logical reasoning, with the UK reportedly paying £13 billion into the EU and only £4 billion of that coming back to the UK in the form of EU expenditure.

Another reason many chose to leave related to immigration. Some feel that immigration laws are too lenient, and as such the UK is allowing too many unskilled workers into the country who simply do not contribute enough to the UK economy. The strain on resources is another factor in this, with benefits and welfare largely available for those who enter the country. Stricter borders, they feel, is what’s required so that a tighter screening process is in order for those wishing to enter the country.

Why do some people want to remain in the EU?

Brexit parliament image

Protesters outside the Houses of Parliament in January 2019. Source: Martin Hearn (CC BY 2.0).

For those who want to remain, they see the implications of leaving the EU as far more catastrophic. Within the EU zone there are open borders, meaning people are free to travel as they wish without the need of visas and permits. EU citizens also have the right to live and work in any EU country. The UK relies heavily on tourism for a proportionally large amount of its gross domestic product (GDP). The sector alone generates a staggering £106 billion a year, but the industry relies on the country being easily accessible to visitors. Leaving the EU does not necessarily mean free movement will be completely eradicated, but it is a possibility.

Trade is also a big factor in people’s willingness to stay in the EU. The European Single Market is the largest single market in the world. Those EU nations that trade with one another enjoy an ease of trade where barriers are reduced and efficiency is high. Leaving the EU may hinder trade relations between the EU members and the UK. It may also reduce the UK’s trading power with other nations as they will no longer be a part of the European Single Market, and thus may become a less-desirable trading partner.

However, the UK will almost certainly feel the effects of leaving the EU due to the implications of a tough Brexit deal. It’s clear the EU won’t offer a favourable deal for the UK to leave the union, simply to dissuade other members from also leaving, which would weaken the EU. Therefore, in the immediate aftermath of the departure, the UK can expect to feel the brunt of a strict Brexit deal.

When is Brexit going to happen?

Friday 29 March is the exact date at which the UK will leave the EU. At 11pm, the UK will officially cease to be a member. However, this date is simply a formality where the UK will no longer be an EU member. Negotiations over future relations will continue for the duration of the ‘transition period’ that will end on December 31, 2020.

Is Brexit definitely going to happen?

There is an option for Brexit to be delayed and even cancelled all together. Article 50 has the possibility to be extended for a few months if there’s a chance that the UK may stay in the EU. A second referendum has been proposed by a number of parties which will give the public a second chance to vote – this time in the knowledge of exactly what a Brexit deal would entail were the UK to go ahead and leave the EU.

What is Article 50?

Article 50 (of the Treaty of Lisbon) states that any member has the right to leave the EU. It briefly states the legal process by which a member state must go through to leave.

When was Article 50 triggered?

Article 50 was triggered on 29 March, 2017, initiating the UK’s formal departure from the EU. From this point onwards, a two year period was given to formalise an exit deal.

How will Brexit affect U.K citizens?

Nobody quite knows exactly how Brexit will affect the UK, we can only speculate. That is why it has drawn such contrasting opinions; it’s impossible to tell exactly what will happen and more importantly what the implications will be.  

Many immigrants living in the UK are concerned over the current uncertainty regarding their future in the country. Despite reassurances from certain figures, nobody can say with 100% certainty that their lives won’t drastically change.

Similarly, those Brits who have emigrated from the UK to Europe, and currently reside in EU countries, are concerned about their future. Again, they’ve been given assurances but the fear of the unknown still remains. This all comes down to the fact that this whole Brexit situation is unprecedented, which is why speculation is rife and decisive answers are hard to come by.

Will I be able to travel around Europe as normal?

One huge asset of being in the EU is the fact that membership allows for free movement of travel within other EU countries. Brexit means this will no longer apply, or at least, no longer apply to the same extent. The exact travel stipulations post Brexit are not entirely known. It’s likely that visas won’t be required, but it will certainly be more difficult to travel within the EU – but at this point it’s unknown to what extent.

Should I get dual citizenship?

The answer to this differs from person to person, but only you can make the decision. Dual citizenship does have its benefits, especially when it comes to Brexit. Free movement within Europe and the right to live in any EU country are huge advantages, but it is not a decision that should be taken lightly. Some countries don’t allow for dual citizenship, so you may end up having to denounce yourself as a citizen in one country to become a citizen of another. Fortunately, the UK allows for dual citizenship.

Brexit's impact on my trading

By this point, you should be all caught up with what Brexit is and what its implication may be, but what impact will Brexit have upon trading?

How is Brexit affecting the trading and the stock markets?

It is difficult to identify a specific effect on one market due to Brexit, simply because there are so many different factors that contribute towards a market moving. However overall, it’s clear that the uncertainty surrounding Brexit has transcending to some markets in a more general sense. As a result, there has been a large amount of fluctuation and volatility, specifically with foreign exchange (FX) markets.  

Although that means that it’s been difficult to determine trends and predict the future movement of markets (but then again, when is this not the case?), it has equally presented a great opportunity for traders. The potential is there to benefit from these large fluctuations, but caution should also be taken as the risk can be great as well.  

How will Brexit continue to affect trading and stock markets?  

FX markets are likely to continue to be affected heavily. This is simply down to confidence that people have of the UK and consequently how strong the pound will be. For instance, if a highly unfavourable deal is struck with the EU, people may predict that the UK’s economy will struggle and confidence in the pound will decrease as a result.

What trading markets in particular are affected the most by Brexit?

As mentioned, FX markets involving GBP will be the most reactive to Brexit. Based on how well it is believed the UK will come out of Brexit often determines how people trade GBPUSD, GBPEUR etc. for obvious reasons.

GBPUSD chart

Chart showing the fall of GBP against USD, in the aftermath of the June 2016 Brexit vote.Source: ETX Capital (TraderPro).

Companies with UK-based headquarters, who perhaps have large dealings with Europe, will also be affected by Brexit. The barriers to trading, that currently don’t exist while the UK is part of the EU, will make things harder logistically for these companies. Whether they can ride out the Brexit storm and prosper on the other side or falter and succumb to the barriers presented to them, is yet to be seen.

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