The decision of the United Kingdom to part ways with the European union, popularly known as Brexit, has brought with it some major shake ups in various sectors of the economy in England. One of the sectors that is likely to be affected is the financial market, and more specifically the Forex Market.
In the wake of the Brexit deal, several issues arose. One of the issues was that of funding the new budget. How did this become an issue? The new budget was structured to ensure that once the Brexit process had been completed, the budget would be enough to sustain the country without help from the European Union. For this reason, there was an increase in the amount of taxes to be collected. The funding of the Brexit was now transferred to the British people. When analyzing this move, you will notice that the burden was spread across the board and it also affected the financial market players. You can get more credible news on brexit and other top Forex firms and brokers information for 2018 year at topbrokers.com.
What were the immediate effects of Brexit on Forex trading?
The exit of Britain from the European Union, as was expected, affected the Forex market. Letus look at the immediate effects of the Brexit on the Forex market
The Brexit acted as a relief for some of the Forex brokers. Immediately after the decision was made, the Forex market was full of activity. Contrary to what people thought, the Forex market remained unshaken. An example is the situation that was experienced by Thomas Reutures Forex traders. On the Friday after the referendum, the average daily transactions rose by $164 billion from the previous month’s daily average.
In addition to the rise in the trading volumes experienced, there was also a surge in the number of people who opened accounts with Forex brokers. Plus500, the retail Forex broker experienced a significant number of new Forex trading accounts as more than a thousand accounts were opened on a single day after the Brexit referendum was completed. This development came with an increase of the spread revenues as more trades were being initiated and thus the spread revenues increased. Saxo Bank clients, according to the bank, recorded profits excess of €200 million from Forex trading.
Some brokers, like Dukascopy (based in Geneva) changed their leverage policies. Dukascopy were quick to remove the leverage restrictions on some of the currency indexes.
How will the brokers who used to operate in UK before Brexit be affected?
Before Brexit, Forex brokers operated in the EU countries freely as a result of the EU-passporting rights. Passporting allowed the Forex brokers recognized and licensed in one European country to operate freely in any other EU country. All EU countries under the passport were under obligation to recognize the regulatory license of the particular Forex broker depending on the size of the passport and the number of countries the firm listed as potential markets.
What is the challenge brought by this? When Britain exited the EU, it meant that the firms passports would not entitle a trader from a EU country, for example Germany, to trade using a UK based firm that operated in Germany under an EU passport. However, if the broker is registered in Germany by the official regulatory body it would not affect the trader much. The broker will only have to change the client agreement.
The issue arises when the broker is operating in Britain using the EU passport without having full accreditation I Britain, then it will have to be registered or be forced to abandon the UK market.
Three reasons for House of Lords to make new laws regarding FX brokers
· Trademarks of FX brokers validity
Since UK is not part of the EU anymore, there emerges a problem associated with the European Union trademarks for FX brokerage firms. The trademarks are no longer valid in the UK and all new registrations of the brokers will not include the UK.
The House of Lords now have to make rules regarding the trademarks and designs of FX brokers that now have to operate in Britain.
· The issue on licenses
The UK now has to make rules with regards to the issuance of licenses for Forex brokers. Now that they are not bound by the rules of the EU they now have to formulate laws that will work to supplement those that have been made null and void by Brexit.
· They have to attract investment
It is a fact that Brexit brought with it some mixed feelings. No Forex trader wishes to trade with a broker that is not well regulated. On the other hand, no broker wishes to work in an unregulated market. UK will then have to ensure the two scenarios are made ideal Forex brokers and traders for purposes of encouraging Forex trading.
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