The post-Brexit panic has come and gone, but many experts warn that it’s far too early to push England’s exit from the European Union out of our minds. For one, the actual process for England to legally separate themselves from the EU has not even begun yet. As you might remember, there was a huge worldwide drop in stock prices right after the vote went through, and it took many marketplaces several weeks to recover from the surprise vote results.
Before we completely write off the Brexit, it’s important to know what the potential financial risks and fallouts might be as the process goes into effect. The big issue is that although there have been many drops in price in England and European markets, these have been largely covered already and no actual changes in political and economic structures have yet occurred.
One of the bigger risks that is not readily discussed is the fact that London has traditionally been a business center. Large companies from the United States set up offices and outlets in the city because this has traditionally been a large business center. London has been a place where the U.S. can do business with all of Europe, as well. However, when England and the EU separate, there will be fewer other European businesses doing business in London, and that takes away much of the appeal for U.S. companies to move in here. There is a great potential for U.S. companies to find a new European city to do business in, which would be a drastic hit to the British economy. Both long term investors (of any sort) and short term traders—particularly mid-term binary options traders—need to be aware of this repercussion.
Even more than normal businesses, banks and the whole financial sector will be negatively impacted. Banks facilitate transactions between corporations, and if this declines, then banks suffer dramatically as a result. Banking is big business in London, and for years it has operated as the center of the European financial world. However, if this were to be hit, the entire British economy would be harmed—just like the U.S. was hit hard in the 2008 financial crisis. However, because of the fact that finance is a much more important sector in England than it is in the United States, the reverberations would be even worse than they were. As you know, it took the U.S. a few years to get over the market declines that occurred. In England, there’s potential for depression-like circumstances to occur.
Making strides to prevent losses stemming from the actual Brexit is a smart move to make. As a trader, you obviously want to make as much money as possible, but sometimes the best place to start is to know what not to do. And right now, that includes long positions in England—particularly in the banking subsector. Debt in England and a lot of the rest of Europe is on the increase as companies are issuing more and more bonds. This is in stark contrast to what is going on in the United States, where corporate debt is drastically dropping. This trend began at the beginning of 2016, and the differences have grown dramatically since then. The balance between stocks and bonds is a minute one to most traders, but in this case, the discrepancy is something that needs to be acknowledged just because it is so much a part of how different economies function. Again, as you plot out your short term trades, knowing how these facts interplay with your particular assets of choice will help you to make smarter decisions moving forward, especially as the separation between England and Europe officially begins.