The world is changing fast and to keep up you need local knowledge with global context.
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It’s undoubtedly true that the economic fallout from the coronavirus pandemic will likely be felt for years to come. However, while most businesses were – and still are – struggling to stay afloat, online traders and speculators have found that the coronavirus and the volatility it has ignited in the financial markets has led to highly increased trading activity and unprecedented profit potential.
The impact of the coronavirus on the financial markets
The pandemic has disrupted the global economy and the imposed lockdown measures and restrictions across the world translated to significantly reduced demand for a variety of services and commodities.
In order to curb the effects of the coronavirus on the pandemic, central banks have adjusted their monetary policy and provided stimulus and relief packages to boost the economy.
The stock market tumbled by more than 35% in the first few weeks while the oil market has arguably suffered the most as demand for oil and gas products completely dried up. The ensuing price wars between major oil suppliers eventually led to a historical oil crash on April 21, with rates going well into the negatives.
Unsurprisingly, 2020 is turning out to be the best year for gold as its price has recently skyrocketed to record levels. Gold has always been considered a safe-haven investment and a desirable asset to hold in times of economic uncertainty and case in point, gold is currently riding a record high near $1,800 per troy ounce. This marks an 18% increase in gold prices since the beginning of the year.
Some national currencies and their exchange rates did stumble due the effects of the coronavirus, but this also gave rise to the U.S dollar, which is also considered a safe-haven currency and the most traded currency in online forex trading.
Panic, uncertainty and market opportunities
While the majority of the global financial markets is seemingly devastated by the pandemic, online trading is enjoying some of its most exciting and profitable years yet.
This is due, in equal parts, to the increased volatility in the markets and short-selling, which is the ability to sell an asset without owning it beforehand. Most forex brokers deal in Contracts for Difference (CFDs) which allow investors to either buy or sell an asset and profit from the difference in price between opening and closing a trade.
Therefore, the common trading rule of thumb, which is to buy low and sell high rings true for CFDs too, but with CFDs, you also have the capability to sell when prices are high and profit from the downward market movement as well.
As you can imagine, any high-impact event that triggers significant volatility in the market effectively means that there are more opportunities to trade and profit from this movement.
As such, a case can be made that the coronavirus has been a huge boon for online trading and this is why there has been an influx of thousands of new retail traders looking to take advantage of the new opportunities in the financial markets and rightly so.
Forex traders who can anticipate and make accurate predictions on how the market will react, can position themselves to profit from the wide price movements, the increased volatility can trigger in the market.
An alternative way of generating income
Online trading has been a viable approach towards capital growth, but with the recent turn of events, some traders have managed to turn trading into a full-fledged business and their primary source of income.
Online trading is a massive industry and even though a forex broker mainly deals with currency trading, there is substantial interest in other tradable assets including commodities, stocks, indices and cryptocurrencies.
All these assets are available to traders through a forex trading account and the barrier to entry and trading costs are low enough that anyone can take part in online trading – regardless of account size.
However, while the process of online trading is technically quite straightforward, it’s important to note that there is a certain degree of complexity when it comes to market analysis and there are significant risks involved to consider as well. In fact, many times the underlying risk is typically correlated with the potential reward and therefore, traders who take aggressive traders with high profit potential will likely need to bear higher risk exposure also.
Fortunately, beginner traders don’t need to go at it alone and get into the thick of it without prior experience. A simple way to get your head around trading the financial markets without worrying about losing your investment, for example, is to open a demo/practice account first.
This option is available with all trustworthy retail brokerages and provides a risk-free approach to learning how use all the tools available in the trading platform as well as building your skills and developing a trading strategy that works for you.
If you are looking for a more hands-on approach, you can get in touch with your broker’s customer support to inquire about trading guides such as eBooks, on-demand videos or if you can take part in any upcoming educational webinars.
Step into the exciting world of online trading by joining CM Trading, the best performing regulated broker in South Africa.
Register here to get started.
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