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What Is Brexit and How to Deal With It?

1:20 PM Nov 8, 2019
2935
Forex trading

If you trade the British pound or at least consider this option, then you probably noticed that its rate has behaved unpredictably over the past three years. These market fluctuations are caused by Brexit. Today we will take a closer look at this whole situation and decide how to trade during this period.

A Few Words About Brexit

In 1973, Great Britain joined the EU but in June 2016 after a referendum, it has decided to “divorce” the European Union. The word Brexit itself comes from a British exit.

No one can tell the exact reason of Brexit. But the main reasons mentioned are the following:

  • The United Kingdom wants to make decisions for itself
  • Too much bureaucracy in the EU
  • The influx of immigrants into the UK
  • Excessive payments to the EU treasury, etc.

The first of the listed reasons is the main one, as it was indicated by the majority of those who voted in the referendum.

What Stops the Brexit?

There is a special set of rules for a country to exit the EU, also known as Article 50. It contains the conditions that must be met by both parties within two years after the official announcement of the separation.

Brexit was planned for November 2018, but it continues to be postponed to this day, as countries cannot settle. The main reason is the so-called backstop. The problem is that there used to be a bloody war between the Republic of Ireland and Northern Ireland (a part of the UK). And this war was stopped only on the condition that there would not be any official borders between them.

Since Ireland is a member of the European Union, Brexit will lead to the appearance of this official border. Fearing the repeated wars, the British Parliament continues to vote against Brexit until backstop issues are resolved.

What If There Is No Settlement?

We already know that countries have two years to exit the EU. In case they fail to agree, then when the deadline comes there will be a hard exit or no-deal. For the United Kingdom, among other things, this means that further trade with the European Union will take place on the general WTO terms, including tariffs, state duties, border controls, etc.

No-deal was supposed to happen on October 31st, 2019, but it was postponed until January 31st, 2020. Most likely, this delay will be the last. Chances are high that countries will not be able to agree on a backstop and in a few months, there will be a no-deal Brexit.

Influence of Brexit on GBP

Today traders have already learned to follow Brexit news and timely respond to them. Good news usually leads to a bullish market, bad news leads to a bearish movement. Keeping up to date with the latest changes, you can also make some profits on Brexit.

Most likely, after the final Brexit, the British pound will go down. The same might happen to Euro as well since the GDP is most likely to decrease for both sides.

How to Trade During Brexit?

Great Britain is the first country decided to divorce the European Union. Therefore, so far no one can give accurate forecasts about the rates of the involved currencies. But we can say for sure that Brexit has already caused high volatility in the market.

Here's what you should do if you plan to focus on the British Pound trading in the near future:

  • Carefully follow your trading plan, do not open reckless trades
  • Put Stop Loss on all your positions
  • Keep up with the latest Brexit news
  • Always keep an eye on the market and set alerts on price changes

Trading British pound can now be called "indefinite” or “uncertain”. It is difficult to say what results we should expect. Nevertheless, with proper risk management and a clear adherence to your trading plan, you can make good money on this situation.

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