2020 has been an interesting year both economically and financially. The impact of the Covid-19 pandemic on the global financial market has been tremendous. News of lockdown and restrictions constantly affects the market, increasing the volatility to unprecedented levels. As a new forex Trader, it may seem overwhelming to you, but there is opportunity, even in the midst of this happenings. In this article, we’ll take a look at the current opportunities in the forex market.
Covid-19 affecting demand for currencies
The demand for currencies across the world is changing due to a number of factors such as unemployment, reduced interest rates, and actions of the government that impact Industries. The major Industries impacted include hospitality, tourism and travel, as restrictions and lockdowns are implemented.
In an analysis of the forex market in 2020, China and Australia were the first countries to be impacted by the pandemic, due to the virus’ alleged origins in China and Australia’s position as the biggest trading partner to China. As the virus continued to spread throughout the world, European nations like Spain, Italy, Germany, the United Kingdom, and France saw the death rate rise rapidly and investors began to favor the US dollar. This caused many investors to start to see the US Dollar in the hope that it will be a more stable option.
As the impact of the pandemic began to be felt heavily in the United States, confidence in the dollar began to drop, and the US economy entered into a recession. On the other hand, Chinese and Australian economies have begun to recover, providing an alternative for investors. This ebb and flow of economies as they get impacted by pandemic plays out as increased volatility in the Forex market.
How Volatility presents an opportunity in the Forex Market
In the past few years, volatility and trading volume in the forex market has reduced, which means that the opportunities that forex traders can capitalize on also reduced. It’s been tough and, to be frank, a little boring, in the forex market. As the coronavirus pandemic hit the global economy, however, the forex market was turned upside down.
For example, a look at the yearly trend of searches for the time “online forex trading,” there was a significant increase around the time when covid-19 hit the world.
What could be the cause of this?
A probable explanation is that a combination of self-isolation via lockdown and job losses across various Industries means that more people found themselves with limited options but more time to create an income. While many people decided to binge on Netflix, others took matters into their hands and educated themselves about the forex market.
This influx of attention, coupled with the effects of the pandemic on various economies have introduced greater volatility into the forex market. This provides opportunities for traders to profit from the market.
It is hard to predict what will happen next in the forex market in the remainder of 2020 and in 2021. Threats of a second and even third wave of the coronavirus pandemic around the World could already impact already volatile global markets.
For the time being, it is likely that volatility will remain high, along with a high trading volume. However, with the uncertainties around the United States presidential election, Brexit, and the future of the European market, forex trading is likely to remain risky for the time being. This doesn’t mean that traders can not make money in the market. It simply means that it’s much easier to make and lose money.
With experts forecasting an impending global recession, there remains a potential for currencies to rise which means that forex trading is likely to remain profitable even come 2021.
What does this mean for new traders?
For new traders, the volatility in the market means that trades can do both for and against them, and as such, proper risk management is essential. While volatility provides an opportunity for massive gains, it also opens the door for huge losses. You would be wise to reduce the leverage you trade with and your position sizes. Remember that the primary goal of forex trading is to protect your capital not chase huge wins.
Also, more attention should be paid to fundamental analysis, that is, new traders need to understand how financial and economic news affect the movement of currencies. Technical analysis alone might not be enough, as one shocking piece of news can turn the whole market upside down. A good example will be the announcement of Donald Trump’s testing positive for covid-19. This news had a significant impact on the stock market and to a lesser degree the forex market
Stepping into the forex market can be quite overwhelming, and the volatility can be quite scary, but there is opportunity in the midst of the chaos. As the Forex market experiences more volatility and higher trading volumes, higher profits can be made, as long as you remember to protect your account and carry out proper risk management.