How Will Brexit Change The Forex Market?

All eyes seem to be focused upon the results of the recent referendum within the United Kingdom. While there was a considerable amount of speculation before this vote to leave, many Forex investors are left scratching their heads in regards to what the future may now hold. This is indeed worrying, for it seems that we are entering into uncharted territory in regards to the comparative value of pound. Some are even concerned about how stable the European Economic Community is as a whole. These concepts have been met with both trepidation and enthusiasm by currency traders. Although the future is impossible to predict with absolute certainty, are there any broad observations that can be made for the coming fiscal year?

Taking it Slow...

One of the first major points to highlight is that the Brexit referendum will not trigger a sudden exodus from the European Union. It can be argued that this concept has not been mentioned enough in many news articles. Any substantial changes will take nearly two years to implement. During this time, trade agreements can be renegotiated and companies can take the appropriate steps to retain their market presence. Therefore, the Brexit can be thought of as an ebbing tide more than it should be associated with a financial precipice.

A Faltering Union?

The bad news is that the referendum vote could very well signal a sentiment that is being felt throughout Europe. Since the inception of the European Economic Community, there have always been those who believe that a single-currency market would not last. Thanks to recent political fractures in areas such as Spain and Greece, this seemingly pessimistic observation could very well prove to be true in the long run. Although it is nearly impossible to imagine this 28-member bloc returning to its previous domestic currencies, anything is possible.

Eyes on the Forex Markets

As we are aware, Forex trading is associated with both liquidity and volume. Profits would be impossible without the presence of these features. There is also a general rule of thumb that relates just as much to currency exchanges as it does with more traditional assets such as equities and commodities. Simply stated, this two-part rule observes that:

● Bearish markets may signal a risk-averse stance to be adopted.

● Bullish markets are known for increased volume and liquidity.

Assuming that the United Kingdom and the EU as a whole may now be entering into somewhat bearish territory, what can we expect from the average trader? If history is any reliable indicator, many investors might take a watch-and-wait approach during the remaining 2016 fiscal year and well into 2017.

Rising Above Average

However, some Forex investors will naturally choose to see the bigger picture. A falling pound and a faltering euro are excellent investment opportunities from a long-term point of view. What goes down will certainly rise again. This is particularly the case in any medium-term drop witnessed within the British financial markets. So, many astute individuals will be utilising proactive systems such as those offered by CMC Markets. One of the underlying principles of any financial index is that should we look hard enough, there is always a silver lining. The effects of the Brexit will likewise follow this rule.

As mentioned in the beginning of this article, determining the exact ramifications of the Brexit is still quite difficult. However, applying basic Forex trading principles to this scenario will enable forward-thinking traders to capitalise on what may very well be one of the most lucrative investment opportunities in decades.