The Brexit vote in 2016 sent shockwaves around the world and threatened to have a major impact on the global economy, including stock markets. The immediate result of the decision of the UK to leave the EU was financial instability and that has continued in the months since the vote, but the process of the UK departing is nearing the end. By next spring, Brexit will be a reality, and traders and stock market investors will be coming to grips with it.
So, what will be the implications for traders?
There are many different takes on this and you can catch up with the latest thinking on the Brexit implications at any leading online trading forum. But some of the more pessimistic predictions may be unfounded. While Brexit will have a significant effect on some of those UK companies that trade with Europe, for traders, the outlook is much more stable than you might think.
Whether it is in the EU or not, the UK will continue to offer a stable business and finance environment. The regulatory standards and legal framework in the UK financial markets are some of the strongest in the world, offering excellent protection for investors. For example, there are numerous regulations governing conflicts of interest in the way that companies operate when it comes to a range of financial dealings, including takeovers.
The stringent listing requirements of the London Stock Exchange (LSE) have made it one of the most popular stock markets in the world. A variety of multinational companies have chosen to list in the UK, and that is unlikely to change after Brexit. It may also be the case that, outside the regulatory restrictions of the EU, the LSE may be able to provide an even more attractive option for major companies. For the US trader who trades on the LSE, there is no reason to worry that Brexit will weaken the attractiveness of that market.
It is of course likely that some UK stocks will face turbulence as a result of losing access to the single market, which appears to be an inevitable part of Brexit. But the proportion of UK companies that draw the majority of their profits from European trade is relatively small. US investors should also be aware that the UK companies listed on the LSE are not representative of the economy as a whole. For example, the UK car industry may be badly affected by Brexit but there are no listed car makers on the LSE. Major sectors such as oil and mining and pharmaceuticals have very little exposure to the EU.
Brexit will have some major implications for the UK economy and US traders should monitor economic indicators carefully. The stock price of individual UK companies that trade heavily through the single market will also be affected. But the strong regulatory environment in the UK and its globally recognized reputation as one of the world’s most important financial centers will remain in place, which is good news for traders dealing in the UK market.
Video – What is a Trader?
A trader is anybody who buys and sells products or services. There are, for example, forex, stock, fruit, and vegetable traders.