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Monday, 27 June 2016

Britain's Exit from the EU

Britain in the EU

The European Community was established in 1967 stemming from the Treaty of Rome that was signed by 6 European states in 1957. Subsequent to the forming of the European community Britain joined in 1973. In 1975 Labour Minister Harold Wilson had a referendum on whether Britain should stay in the European community. That was the last national referendum and had 66.8% voting Yes to stay in the Community.

With the recent vote to exit the European Union 43 years has passed with the Brits as part of the EU. Now that they have exited what will take place going forward. Will other countries have referendum and leave as well? Will the Pound (GBP) suffer? Will the commodities market plunge? so many things will be affected by the Brits exit.

Who voted to leave?

From the Poll shown above it shows that the older persons (above age 50) have decided the future of the youths. The voting break down is very clearly shown and begs the question, why does the older folks who are on their way out is deciding such a future for the younger generation and others to come?
It seems as if these older voters have gotten tired of Britain being in the EU and thought it was best for them to leave the community. The after effects of this exit will have a huge effect on things going forward since Britain has been a part of the EU for so long.

Effects on GBP

In the hours following the results of the vote saying Britain will exit the EU the British Pound fell against all competing currencies. It was almost an instant nose dive for the GBP. Anyone that had a trade open in favour of the GBP would lose severely while traders who had trades against it would be smiling all the way to the bank.
It is  normally recommended that you close trades when such huge events are to take place since it isn't normally guaranteed which direction they will go and how it will affect the market. Some Traders took the risk and won while others to the risk and lost a fortune. In the previous blog post it was discussed how some brokers prepared for the Brexit vote adjusting margins, spreads and leverage. This help the brokers but can hurt the traders if they didn't prepare for it.

Effects on other currencies and Commodities 

The Exit of the Brits from the EU have already negatively affected the currencies in the EU by creating an uncertain of trade relations and the one border that the EU stands for.
The exit also affected numerous other currencies either in a negative windfall or a positive growth. For instance the Aussie was affected due to trade reasons with Britain and also because the Brexit affected oil prices as well. The greenback smiled against the pound in trading in light of Britain's exit. The BOJ governor have taken measure to ensure the Yen (JPY) doesn't climb too much as it would affect import cost and as such the stock market.
Before you trade a currency research the effects and implications of the Brexit and use it to enhance the probability of your trade being good.

Future Implications

There's a lot of implications of the Brexit on global economy, commodities, trade relations and even sporting contracts. Laws will be changed which will impact immigration, visitor travels and existing court cases.
All markets whether stock or Forex will need to reorganize and ensure that the future uncertainty of Britain doesn't affect them too bad. Forex brokers will have to keep a track of their margins and leverage while the traders will need to pay keen attention to their risk management strategies.
Companies will need to keep focus of their expenditure in loom of reduced value of the pound. This could affect raw materials, export quantity as well as other operation expenditures. All stock markets took a blow with the Brexit.
From a traders perspective I would recommend holding off on any trades that is not above 80% probability of winning and this recommendation is only if you definitely want to trade. Otherwise I recommend just watching the market for another couple weeks to see if fundamentals balances out the currencies.

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