The COVID-19 crisis ushered in waves of chaos across the world – and the global economy was not left untouched. Far and wide, corporations were forced to reduce their business hours, downsize their staff, and find new ways of reaching out to their customers. The time taken and friction caused to set up such systems were costly for all parties involved.
While a notable number of the major corporations (retail chains, banks, major airlines, etc.) were able to seek relief and stay afloat, there were just as many (if not more) medium to small establishments that suffered crippling losses.
The Rolling Effect of COVID-19 Precautions and Regulations: Limited Business
These unfortunate measures and events didn’t just affect business. The markets suffered as well, therefore impacting Forex trading. The New York Times reported increased levels of chaos, as experts and citizens alike sought to find answers to the growing economic crisis.
Analysis from Gainsky further buttressed this discovery, highlighting the ravaging effect the prevalent coronavirus had on the world, its subsequent impact on international trends, and the introduction of a looming recession.
“In just a single five-week period, approximately 26 million Americans applied for unemployment benefits due to the unprecedented pandemic, causing a massive blow to the stability of the financial market,” says Robert Bentz, CEO of Gainsky, offering more perspective on the effect of the pandemic on major markets.
Rising Unemployment and Struggling Emerging Economies
With unemployment comes lower income for citizens and less spending capacity. Not only does this have an effect on businesses that thrive off of the spending capacity of its patrons (retail, ecommerce, travel, etc.) this shift has also seen a change in how trading unfolds.
Experts noted that COVID-19 “placed significant pressure on the foreign exchange rates of EM currencies.” EM currencies refers to currencies from developing or emerging economies, with some of the leading ons being the South African rand, Mexican peso, and Chinese yuan.
These currencies are known for being volatile but they also hold immense growth potential. Forex traders find these attributes to be attractive because of the major returns that come from successful trades. However, external influences such as global lockdowns, travel bans, and quarantines caused the worldwide economy to contract. World Bank Group reported that the international GDP has fallen by 5.2% in 2020, leaving developing regions with the worst of the aftermath.
What Does Trading Look Like Now?
Traders’ response to the sudden, global changes was to seek security first and abandon risk. FXCM reports that from late-February going into March 2020, when the reality of COVID-19 hit the world, major sell-offs in global equity markets intensified in frequency. Major markets like the Dow Jones and S&P 500’s cashed frequently, causing further panic amongst traders.
But, now that the wave of panic-led decisions have passed, traders are looking to build on their financial income and attain more security.
“The massive impact of the COVID-19 pandemic on the financial market has driven traders to look for stable investments,” Gainsky reports.
Traders are now more attuned to holding on to their money and conducting lower risk investments as opposed to targeting the more volatile trades that could bring in greater returns. As new traders make their way into the markets, it is important that they gauge the trends of the current system in order to avoid incurring major losses.
Dispelling A Major Myth About Forex Trading and Risk
One of the reasons why interested novices have stayed away from Forex trading is because of the “risk”. To the folks on the outside, they believe that trading is too risky to partake in because of how volatile the markets are – especially now. But, it’s important to note that the market downturn that ensued earlier in 2020 had more to do with the effects of the global pandemic than actual influences from the forex industry itself.
CNBC reported that forex markets experienced volatile behavior as a result of the reining unpredictability of the pandemic. So, this is not a forex problem. It is simply a global issue that can be leveraged in favor of traders. Hence the gradual increase in trading across multiple platforms – there are more people seeking stability through this industry.
This doesn’t mean novice traders need to rush into the market and attempt to trade on their own. It is important that interested investors consult a reliable, experienced broker or firm before channeling their funds into a platform.