With the deadline of March 29th rapidly approaching, there is an increasingly real prospect of the United Kingdom leaving the European Union (EU) without a Brexit deal. UK and EU officials have failed to negotiate a divorce settlement in more than two years of discussions, and with the backstop issue of the Republic of Ireland and Northern Ireland still at the heart of the debate, a no-deal Brexit could be the only option to end the political impasse.
Some financial experts have suggested that UK and EU stocks could fall by as much as 25% and 10%, respectively, in the event of a no-deal Brexit. Even US and Japanese stock markets are expected to decline by 9%, with increased trade barriers and uncertainty causing unprecedented economic turbulence. So, how will a no-deal scenario affect retail investors who trade stocks, forex, and commodities markets, both as a profession and as an investment opportunity?
You might be surprised to find that many retail investors will cope reasonably well with the volatility in the markets. That’s because many of them trade the stock markets using contracts for difference (CFD) brokers. This allows investors to take ‘buy’ or ‘sell’ positions on the likelihood of whether the underlying value of a stock or asset is going to rise or fall.
For those that invest capital in online trading with a CFD broker that gives new and experienced traders extensive risk management features for unprecedented events like a no-deal Brexit, it is possible to short or ‘sell’ the price of an underlying asset if they believe the asset’s value will continue to decline over the short or long term. More financial traders than ever are considering using a CFD broker to short UK stocks – at least in the short term – until the Brexit uncertainty has passed.
We shouldn’t be worried about the future of online trading platforms. In fact, these brokerages thrive off volatility in the markets. If retail investors are choosing to diversify their investment portfolio as a result of the uncertainty in the UK, that’s fine with them.
The Financial Times recently indicated that to shield themselves from exposure to UK equities, many retail investors are looking to hold dollar-denominated assets, as well as assets such as gold and silver. Retail investors spooked by the prospect of a no-deal Brexit are also turning to fiat currencies like the Swiss franc and the Japanese yen.
As a no-deal Brexit would mean that the UK withdraws automatically from the common EU VAT area, as well as the Customs Union, question marks have been raised regarding cross-border transactions. UK retail investors that may use EU-based online trading platforms could be subject to higher-than-normal VAT costs.
Nevertheless, online trading businesses have increasingly made it possible for their retail clients to deposit and withdraw from their trading accounts using e-wallets such as PayPal, Skrill, and Neteller, which should circumvent these issues, at least in the short term.
Furthermore, cryptocurrencies such as Ripple are also working hard to make it more seamless than ever before to make cross-border payments. Visa has recently purchased Ripple’s partner, Earthport, to integrate Ripple into its existing payment network and improve international transactions. Consequently, cross-border payments should be the least of an online trader’s worries.