Covid-19 is having a profound impact on financial markets and forex trading and will continue to do so for a long period of time. One of the biggest factors is unemployment, which is skyrocketing around the world as a result of lockdowns in fear of the coronavirus. The mounting job losses are what make Covid-19 as bad as — and potentially worse than — previous crises such as the 2008 global financial crisis of the Great Depression.
Until there is an effective treatment for Covid-19, the disease is unlikely to go anywhere. Second waves are possible. Following these trading tips can help – and investing wisely now could result in substantial rewards when a fuller recovery commences.
Stock markets and forex trading
Another lead indicator of currency is the stock market.
This crisis has been marked by fear, and fear has been driving ‘risk-off’ trading patterns. Which in turn has seen demand for the dollar soar as a safe haven, because of its status as the global reserve currency.
But when we let emotion, rather than reliable data, drive these indicators we seem to forget that they are only short-term gauges. It is highly unlikely that current prices reflect the longer-term impact of Covid-19.
Online trading tips: Analyze past trends
In unstable times, analysis is more important than ever. By doing proper analysis of the markets and currency pairs you’d like to work on you will get crucial information that will aid you in your decision making.
Even though coronavirus is unprecedented, historical data can give us an indication of what an eventual recovery might look like.
Indeed, according to data from the Financial Times (pay wall), markets in the UK have managed to bounce back from every sell-off within five years. The FTSE was back in positive territory three years after the dotcom bubble burst in 2000, and three years after the great financial crisis of 2008. It was feared that the Brexit vote would be calamitous for the markets. Even though they suffered a nasty fall in the immediate aftermath of the referendum result, they managed to recover one month later.
The best trading tips right now include looking for shares that are undervalued. Several companies took a beating as coronavirus uncertainty set in – some of them unjustifiably given their earnings potential.
Having a positive mentality is crucial and it’s important to be pragmatic.
Example: If you bought 200 shares in a company at €10 each, and now they’re currently worth €5 – it’s natural if you feel worried because your investment has lost €1,000 in value. But this isn’t the best way to think about it at this point in time. Remember that any losses will only become real if you decide to sell the stock, meaning that holding onto them is the best course of action.
“Cash is king when the world is unstable” is advice you may hear a lot right now. Just remember that interest rates are low, meaning that the money sitting in your savings account will provide very tepid returns. So if you can, keep your cool and leave your shares and see where the markets go as we come out of the Covid-19 era.
Forex trading tips
When it comes to trading foreign currencies, it’s essential to make full use of protective stop-loss orders. Although the volatility can result in considerable gains being realized quickly, it’s good risk management to preserve them by using a trailing stop.
You may want to consider liquidating your positions at the end of each day, preventing exposure overnight and into the weekend if things are moving too quickly for your liking.
It’s also worth taking the time to understand the factors that drive a currency’s performance.
While the likes of the US dollar and the Swiss franc are regarded as safe-haven assets, for example, currencies such as the Canadian dollar, Norwegian Krone, and Saudi Riyal feel the heat whenever there is a decline in demand for oil. They will however bounce back with a vengeance when the oil price goes back up, and this has been proven again and again.