What Can Forex Traders Learn From Coronavirus?
While the coronavirus outbreak is first and foremost a global health crisis, this worldwide pandemic is also fast becoming a socio-economic disaster. This is borne out by the numbers, with the UK set to shelve 35% of its GDP during Q2 of 2020 alone.
While this trend is potentially devastating and prevalent across the globe, it’s fair to say that forex traders are reviewing the coronavirus outbreak in a slightly different light. More specifically, they’re looking to leverage derivatives such a currency and generate short and medium-term profits, even as the market’s assets continue to depreciate.
In this post, we’ll explore this concept further, while asking how forex traders can learn and grow during the coronavirus outbreak.
How Impactful has the Coronavirus Outbreak Been?
The initial impact of coronavirus on the world’s financial markets has certainly been significant, with the benchmark S&P 500 Index depreciating at a quicker rate than during Black Monday in 1987 and the global financial crash of 2008.
From the sole perspective of currency trading, the response of individual governments to managing the socio-economic impacts of Covid-19 have also been impactful.
More specifically, developed nations across the globe have slashed their base interest rates as part of wider quantitative easing programs, driving down demand from foreign investors and causing relative currency values to depreciate markedly.
This is particularly relevant in the UK, which is now amongst the hardest hit countries in the world and has seen its own base rate of interest to a record low of 0.10%.
However, these facts are slightly offset by the fact that the economic fallout from coronavirus may not be as long-lasting, as the markets take variable amounts of time to recover and a Covid-19 vaccine could well be fully developed by March of next year.
The green shoots of recovery have already been seen in the form of the S&P, which has gradually rebounded on the back of several nations scaling down their social distancing measures.
The Swedish and Norwegian currencies have certainly started to recover against the Euro and the U.S. Dollar during the last week, for example, as both nations begin the process of kickstarting their economies now that the spread of Covid-19 has been brought under better control.
What Can Investors Learn from This?
As we can see, the staggered nature of the recovery from coronavirus will continue to provide opportunities to forex traders, who can back targeted growth currencies while also hedging against major alternatives like the USD and the GBP (which continue to feel the full force of Covid-19).
Even on a fundamental level, currency traders can continue to leverage a derivative and margin-based market that enables them to operate without assuming ownership of an underlying financial instrument.
After all, traders with a keen sense of determinism will understand that the underlying laws that govern change in the forex market remain unchanged, creating a scenario where it’s still possible to identify trends and pursue viable profits in the short and medium-term.
Longer-term trades are not as sensible in the current climate, however, as it has yet to be seen how long coronavirus will be impactful or whether the subsequent recovery could be maintained.
