Due to the current global recession happening, more retail investors all over the world are looking for other trading opportunities that are not correlated with stocks or other traditional investments. The forex market is one of the largest financial markets when it comes to value, and liquidity has been gaining tractions from different types of investors since the coronavirus pandemic started.
Financial markets during COVID-19
The recession brought about by the pandemic isn’t the last thing to come. In fact, the stock market has been plummeting, and contracting oil prices have already made many retail traders reassess their traditional investments and look for new opportunities.
The coronavirus pandemic has forced the government and financial markets to crisis mode, with the diminishing resources, the debt of different countries are skyrocketing, and unemployment rates going higher than the Great Depression era. Weeks after the World Health Organization declared a global pandemic; the OECD predicted that global stock markets would decline by 30%.
Even though the capital markets and industries are continually declining, the forex industry is thriving. Forex brokers all over the world have reported significant increases in monthly trading volumes in addition to new client accounts. While it’s too soon to tell, the increasing interest of retail investors can be attributed to the plummeting capital markets. Investors may also be looking for other income streams, or simply because they have more time to trade actively.
The current crisis may be one of the reasons the forex market is gaining traction, but forex trading has been increasing in popularity for quite some time now. According to the Bank for International Settlements triennial report of 2016, the foreign exchange market cap averaged $5.1 trillion per day.
Forex trading and its risks
Because of the leverage forex market has to offer, both beginner and seasoned traders are trying this market. The leverage it provides is that the market can potentially produce massive profits compared to others. Still, traders must also be wary that losses in forex end up exceeding the initial deposit, depending on the strategy.
Since there are tools that can help analyze markets and trade from home, forex is seen as an easily accessible trading activity for beginners. Unlike other capital markets, traders don’t need to put up large amounts of upfront money to start trading, and most software available is user-friendly explicitly made for new traders.
According to a forex market analysis report by Regal Core Markets, “trading platforms are continuously strengthened, stabilized, and developed to guarantee secure and easy online transactions while the development and utilization of substitute currencies that make use of decentralized financial systems are increasingly viable options, as well.”
Regal Core Markets is a company that seeks to help individual investors succeed in the capital markets. The company also believes that the current crisis brought about by the pandemic is one of the reasons why many traders and investors are flocking in the forex market.
Experienced investors who are not drawn to the forex market can benefit from automation provided by different trading platforms. For example, MetaTrader 4 offers sophisticated tools that allow investors to implement automated strategies using trading bots and social-copy trading software. The forex market operates 24/7, algorithmic trading and social trading will enable investors to trade continually, but the risks of losing exist so traders must also be aware of that.
Traders and investors must also be aware that the volatility of forex markets and trading with high leverage is a double-edged sword as both profits and losses are magnified. The effect of the recession to traders has made them adh=just the way they approach the forex market, using scalping and day trading strategies instead of holding long term positions.
The COVID-19 crisis is still spreading unprecedented uncertainty and wreaking havoc for individuals, businesses and governments. That’s why more people are looking for new opportunities in different markets, such as forex, especially in investing and trading. Although the volatility will decrease at some point, the exchange rates will continue to impact the market, increasing both the risks of trading in the forex market and its profitability opportunities.