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Brexit: What the Average Joe Needs to Know

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Wall Street loves to make up words and invent new phrases to confuse people. Often times, we make things way more complicated than they need to be just to knock you down a peg or two.

The latest lingo swirling around is Brexit. Sorry to disappoint you but Brexit isn't the name of a new Gothic night club opening up downtown. It's the name for Great Britain's exit from the European Union. No doubt you've heard a lot about it but you may be wondering, so what? Well I'm here to tell you what average Joe really needs to know about Brexit.

The European Union is sort of like what we have here in the US with NAFTA. It's a free-trade agreement between the countries in Europe. British Citizens are going to vote on whether or not they want to stay in this treaty. Kind of goofy when you think about it. Britain has been in the EU since 1973. So a good chunk of the people voting really have no idea what life is like not being in the EU. I mean, what's the difference for Britain? Not much. They already have their own currency. While they are a member of the European Union, they are not part of the European Monetary Union. That's why we've still got the British Pound.

For the leave crowd, they see Europe as one huge mess of red tape and bureaucracy. The European Commission is an unelected body that can pass laws which Britons must abide by. There's no real system of checks and balances. They also believe freedom from the EU will give Britain a chance to make stronger trade deals with other nations and allow Britain to control its borders, an issue that's been in the news recently given the Paris attacks. Leaving would also save them 8.5 billion Pounds.

Those who want to stay point to 3.5 million British jobs that are directly linked to membership in the EU, the added influence the EU and Britain both enjoy as a 28 member union versus flying solo, and the overall economic benefits of free flowing trade with Europe.

When it comes down to it, a vote one way or the other isn't going to make a lick of difference to us here. In the short term, a vote to leave or a vote for Brexit would see a spike in volatility that would probably take UVXY and VXX through the roof. Risk-off algos would be triggered and we'd see some real carnage. But the headline risk would be just that as reality would set in and things would calm down. If the Brexit vote fails, you may see a rally in the FTSE which would translate to a good day for shares of EWU. The ETF, which tracks the British market, is up a little more than 5% over the last few days but is still off considerably from the highs.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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