While most of the trading world has been focused on trade negotiations between the United States and China (which were originally scheduled to end by March 2nd), there's another important event in March that could also have a big impact on financial markets - Brexit.

Brexit is of course the catch-all term used to characterize the proposed departure of the United Kingdom from the European Union.

While most of us may view talk show analysis of Brexit as an effective remedy for insomnia, the failure of the British government to lay out an effective plan for this "event" is pumping up general market uncertainty. As of now, Brexit is scheduled to occur on March 29, 2019, which is a lot closer on the calendar than most probably realize - especially with no clear path to detachment in sight.

One key outstanding question is whether Brexit will be "soft" or "hard" - and those terms aren't meant to characterize how you like your morning eggs.

Instead, a "soft" Brexit refers to an ongoing arrangement where Britain basically remains in the EU sandbox (something as close as possible to the existing arrangement), while the "hard" version (aka “no-deal Brexit”) basically translates to an abrupt break-up between the two. The latter would give Britain full control over its borders, trade negotiations, and the application/enforcement of all laws within its territories.

While no one can accurately predict the effect on financial markets in the aftermath of either scenario (at least with a high degree of confidence), the "hard" path is most often-mentioned as the one with the highest degree of associated uncertainty.

Since the Brexit process was officially kicked-off in March of 2017, most of the last two years has involved the Prime Minister of Britain shuttling between London and Brussels trying to negotiate a “soft” deal that is supported by both sides - a tall order if there ever was one.

The lack of progress, punctuated by yet another losing vote for Ms. May in the British Parliament in mid-February, is pumping enough drama into the March 29 deadline that even the producers of Downton Abbey are starting to get envious.

Regarding near-term Brexit events, there are three important dates you can circle on your calendar in mid-March that may be popcorn worthy:

March 12: A final vote will be taken in the British Parliament on Theresa May’s “soft” Brexit. Scheduled for no later than March 12th.

March 13: Should Ms. May’s “soft” Brexit fail, the British Parliament will vote on whether or not they support a “hard” (i.e. “no-deal”) Brexit.

March 14: If legislators in the United Kingdom vote against both a “soft” and “hard” Brexit, then a vote will be taken on March 14th as to whether the March 29 deadline should be extended.

It’s important to highlight that any decision by the United Kingdom to extend the March 29 Brexit deadline would need to be approved and granted by the European Union.

In sum, the above means there’s plenty of drama left to unfold in this narrative.

Traders looking to learn more about how recent Brexit negotiations have affected a variety of asset prices may want to tune into a new episode of Closing the Gap - Futures Edition. On the show, the hosts review the historical relationship between the British Pound and the Euro, and outline a sample trade involving these two currencies.

Likewise, a previous installment of Options Jive illustrates how the price and volatility of the British Pound has behaved during previous "events" related to Brexit, and provides valuable insight into what traders can expect going forward.

If you have any questions about trading Brexit, or any other currency-related opportunity, don't hesitate to leave a message in the space below, or reach out @tastytrade (Twitter) or to support@tastytrade.com (email) at your convenience.

We look forward to hearing from you!

Sage Anderson has an extensive background trading equity derivatives and managing volatility-based portfolios. He has traded hundreds of thousands of contracts across the spectrum of industries in the single-stock universe.

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