With all the chaos of the pandemic, it’s easy to forget that a no-deal Brexit is just around the corner. Assuming nothing changes in the next few weeks, the UK is going to leave the European Union without a trade deal on 31 December.
Several business leaders have spoken out, warning that a large proportion of companies are still not prepared for such an outcome. However, a last-minute deal could always happen.
The uncertainty surrounding both Brexit and Covid-19 has created significant volatility in the value of the pound. And that’s where an opportunity to both protect and grow wealth exists.
An opportunity to profit from a no-deal Brexit?
Outside the realm of stocks, numerous other financial instruments exist. When it comes to currency, specialised contracts called currency and FX swaps are the two most popular.
But these derivatives are complex, and even a seasoned professional can make severe mistakes. Luckily you don’t need to be an expert thanks to the UK stock Alpha FX (LSE:AFX).
Alpha is a currency risk management and payments solutions business. The firm operates in over 30 countries, assisting companies in protecting their revenue streams from currency exchange risks using the previously mentioned derivatives.
Unlike most other businesses, uncertainty is fantastic news for Alpha. Large swings in currency prices create better opportunities to protect as well as grow the income of their clients.
How Alpha’s cost structure beat the banks
Typically, currency hedging services are offered by large banking institutions. However, this can be quite a considerable expense, especially for smaller businesses.
The payment structure designed by Alpha removes that barrier to entry. The firm does not charge any consultancy fees as a bank would. Instead, it charges commission fees on all trades committed on behalf of their clients.
This approach makes the service far less expensive and, therefore, more accessible to small and medium-sized enterprises.
Alpha focuses purely on the trading aspect of risk management. As such, there is no need to spend money generating reports of currency forecasts, timing dossiers, or market commentary for clients. While commissions don’t yield as much as a consultancy fee, this lower cost of operations creates an operating profit margin of 40%!
A hidden second opportunity within the same UK stock
But beyond its risk management services, Alpha also has a division dedicated to processing digital payments for enterprises.
Cashless transactions continue to become more prominent among consumers, thanks to companies like Visa and MasterCard. But when it comes to large international business transactions, the infrastructure is still underdeveloped.
This ultimately causes inefficiencies which Alpha is eliminating with its international payment solution. Just like other payment processors, the stock charges a small fee for each transaction made through its network.
The bottom line
A no-deal Brexit is looking more likely with each passing day, and so I believe Alpha presents a fantastic opportunity to protect my wealth while uncertainty reigns in the UK economy.
In addition, the payments solutions side of the business looks incredibly promising in my eyes. Therefore, I expect the stock to continue performing well, even after stability has returned to the UK market.