Okay, we know that with everything going on in the world right now (looking at you, coronavirus) there’s a possibility that you are a bit hesitant to jump onto the whole trading in forex boat.
Online forex trading has been going on for decades and has been accepted by institutional clients. Yet sometimes, markets are really wild and crazy, and the current situation with COVID-19 is a good example.
It is important to know the difference between a relatively small crisis and a true panic, which I will call a “world crisis”. Good examples of true world crises within the past century are the Financial Crisis of 2007-2008, the Cuban Missile Crisis of 1962, the Second World War from 1939 to 1945, and today, we have the Coronavirus Pandemic of 2020.
In times like these, opinions differ on whether you should stand aside as a trader or not. However, there is a way to trade these markets profitably. You just have to change your thinking and understand what is going on.
So, below we share with you why forex investing is not such a bad idea this year!
At present, trillions of US dollars are traded daily on the FX market, with retail clients contributing 5% of the total volume, which is about $250 billion.
The FX market involves large multinational trade companies, hedge funds, financial institutions, and other companies. This is why the forex market is huge and full of opportunities that could turn out profitable.
As traders buy currencies, a reasonable flow of funds is created in the process, thus facilitating the exchange of currencies around the world.
A focus on understanding the macroeconomic fundamentals driving currency values and experience with technical analysis may help new forex traders to become more profitable.
Of course, trading in forex is not all rainbows and unicorns. There is risk involved, which is why understanding how things work can be crucial. If you are a relatively new trader, check out my previous article on “How to Start Trading in forex in 7 Simple Steps”!
How to Trade During a World Crisis
We’ve established that what we are currently witnessing in forex and the market, is indeed a crisis. So how do we turn this in the trader’s favour?
There are a couple of things a trader should know and do during a world crisis, not only be profitable but also avoid completely blowing up their trading in forex account.
To begin with, a world crisis is the only time when it makes sense to short stock markets.
This is because it is very possible for a stock market to fall by 50% within just a few days.
Therefore, it is important to keep your trade position sizes small and keep stop losses, tight relative, to the volatility.
A common mistake, especially for new traders, is that because the volatility is high, they make stops extra-wide to give their trades a chance to survive.
In this case, however, it doesn’t matter if you lose trades if you keep your trade position sizes small, as even winning traders lose lots of trades. Like Yvan Byeajee once stated: “Confidence is not “I will profit on this trade.” Confidence is “I will be fine if I don’t profit from this trade.”
Continuing, don’t exit a trade too early by looking for profit targets. Wait for reversal price action, even if on a short time frame. If you try to pick exit targets, you will almost always be far too conservative and miss out on great profits on the winners.
Moving on, when you hear the word “crisis”, you unintentionally link it up with the word “panic”. Being able to control your emotions when trading in forex is very important.
Of course, it’s not easy to make a trading decision if you are worrying that your sneeze might be the start of coronavirus!
Remember, however, what the well-established trader Victor Sperandeo once said: “The key to trading in forex success is emotional discipline.”
The ability to keep your emotions under control is what makes or breaks a trader.
What to Trade During a World Crisis
A good choice would be crude oil because it should drop rapidly as it becomes clear that global economic demand is drastically ramping down.
Major stock market indices are a good idea to invest in. Usually, it is best to trade one of the American ones short, until the crisis begins to end when these indices become long-term buys. The major American indices are the S&P 500 and the Dow Jones Industrial Index.
If you are an experienced trader, another choice would be metals such as gold and silver.
These precious metals may move strongly either down or up depending upon the nature of the crisis.
Last but not least? Trading in Forex currency pairs. They usually show little directional movement and can be some of the biggest movers of any asset in a world crisis, as central banks are forced to take drastic measures with monetary policy.
Crises Don’t Last Forever
All crises end eventually, but every crisis gives an opportunity to profit in the financial markets. Of course, knowledge is the main tool you need in order to trade as successfully as possible, but you also need to trust your broker.
At EverFX we have successful operations all around the world, providing access to over 130 tradable instruments from 6 asset classes for both retail and institutional investors.
Our success is built on diversity, flexibility, transparency and open, reasonable pricing structures.
At EverFX, our goal has always been to create long-lasting relationships with our clients and to empower them with the necessary tools, knowledge, and support to enjoy and excel in their trading in forex endeavours.
Contact us for everything you need to know about the trading world!