The world has come along way since the China Forex Expo 2017. The forex market had been surging in recent years – then the pandemic hit. This begs the question: Is now a good time to invest in forex?
The reality is that it’s hard to be bullish in terms of investing in general. The stock market, for instance, has been hit hard by this global crisis, with Statista reporting across-the-board losses in all major stock market indices in early March. The CSI 300 of China, the epicentre of all these uncertainties, dropped by 12.1 per cent during that period, while the UK’s FTSE 100, Italy’s FTSE MIB, and Europe’s Stoxx 600 registered 21.4 per cent, 27.3 per cent and 23.8 per cent losses respectively.
Unsurprisingly, even the strongest currencies were hit hard by this health crisis. In fact, it has not spared the forex market despite it being the largest and most liquid in the world with an average daily trading volume of $5trn (£3.8trn). Popular currency pairs like the US dollar/British pound (USD/GBP) have hit new lows as governments around the world scramble to face the invisible enemy.
The UK pound struggled during the onset of this pandemic, with the BBC reporting in March how it fell to $1.15 (£0.88) against the dollar — its lowest exchange rate in 30 years. Even the US dollar, hailed by Bloomberg as the ‘haven currency in a crisis’, has wobbled under the weight of the pandemic’s economic implications, falling to its lowest level since March. Incidentally, the US government’s multiple stimulus packages have kept the greenback strong these past few months, and have given the financial world the boost it needs to not collapse amidst economies shuttered by lockdowns and global measures.
These past weeks, however, economies around the world have been starting to show signs of life, resulting to currencies stabilising, including the British pound and the US dollar. Needless to say, investors are growing more optimistic by the day. As we initially reported, online provider of forex HYCM found that 36 per cent of investors are confident in how they are managing their finances, while another 31 per cent fully believe that they’ll be in a better position financially after this health crisis.
“With markets slowly recovering, new opportunities are presenting themselves,” explained Giles Coghlan, the chief currency analyst at HYCM. “The challenge, though, is for investors to still work towards long-term financial objectives even when there is so much uncertainty around us.”
Following on Coghlan’s analysis, investors are advised to rethink and recalibrate their trading strategies. In particular, they will need to take into account a range of other factors such as growing unemployment, oil price performance, and the global demand for the dollar. That’s because relying solely on market charts and interest-rate scenarios — valuable tools traders can use to predict forex trends — won’t suffice in these trying and uncertain times. Analysing a greater variety of data points will be a big part of how investors can make a profit from forex.
It helps, too, that trading in forex offers a little more leeway as opposed to trading in stocks. This means volatility in the world of currency exchange can at least be managed effectively. In fact, FXCM details how there are various trading strategies an investor can use to profit from fluctuating periodic exchange rates, which we have seen over the past few months. Short-term intraday trading (not holding a position overnight) and multi-day session swings (a position typically held over two to six days) are just two of these strategies that traders can adopt to take advantage of the “unparalleled collection of opportunities” forex presents. Given forex’s inherent flexibility and using the right strategy, it is possible to manage risks in currency trading, or even make a profit off it despite these uncertain times.
Having said that, lots of investors are still alarmed by this global health crisis and how it is affecting different markets. Yet, despite the increased volatility of the forex market, Jubilee Ace predicts that high-frequency trading will help steady the market, making it a viable investment option during these difficult times.