The world continues to look for ways to negotiate the disruptions caused by the COVID-19 pandemic.
Millions have lost their livelihoods and individuals and companies still face uncertainty.
The world’s largest market, the forex market, has also been affected by the pandemic and seen trading volumes increase up to 2.4-quadrillion.
Dany Mawas, Regional Director at INFINOX gives his views and explains the effects on forex traders:
“Although stock markets and bank deposits were depressed during the onslaught of COVID-19, many opportunities arose for forex traders. Any currency changes can be used to make a profit and a falling market is as profitable as a developing one,” says Mawas.
“Examples of trading volume increases which positively affected trade recently include a global increase of +18% and +725% in Africa when comparing May 2020 to May 2021. Furthermore, trade volumes increased by +85 % globally and +354% in Africa when comparing Q1 2020 versus Q1 2021,” he adds.
With this in mind, Mawas lists the 4 most noteworthy forex trends that occurred as a result of the crisis:
1. All Markets Were Impacted
Volatility in the financial markets increased as governments and central banks tried to combat the impact of the pandemic. Macro-economic data releases such as a decrease in interest rates or increases in unemployment resulted in increased trading opportunities as they caused the increased volatility.
Cyclical stocks and markets were impacted according to whether their industry was positively or negatively affected by the pandemic. For example, sectors such as hospitality, which gain the majority of their business in the summer, lost huge portions of revenue as the pandemic spanned over one summer, and potentially two for some countries.
No matter what cycle a stock or market best performs in, all have been affected as the pandemic has lasted over a year.
2. Trade in Africa Increased
Trade in Africa was stimulated as low transaction costs attracted African traders with a low capital basis.
Furthermore, many African currencies stabilised and performed well against the US dollar, making them attractive to traders.
3. Forex Grew in Popularity
Although markets varied, some traders focused specifically on safe-haven currencies and commodities, which generated profits during the disruption. Other traders leveraged opportunities, including the fluctuating demand for crude oil.
“Many traders dealing in crypto-currencies moved to forex, because of its greater stability. While cryptocurrencies provided the volatility and excitement craved by traders before the pandemic, they appeared far too risky during current uncertainty,” he explains.
4. New Traders Entered the Market
Sociological trends related to people being confined to their homes had a major impact on trading and the number of traders. Greater numbers of traders worked from home, allowing them to focus to a greater extent on trading.
New entrants to the market emerged as people had more time to research trading, and the looming financial crises encouraged people to consider trading as a new income channel.
They also identified current global events as a unique opportunity to use forex trading for profit.
Keep the Future in Mind
When it comes to the company’s outlook going forward, Mawas says INFINOX keeps its eyes firmly on global trends, because they affect its business and the service it offers clients. “We constantly survey the global environment and use our skills, knowledge and technology for clues that alert us to various crises that influence and present opportunities for forex trade.
Steep increases in trading activity have placed substantial pressure on forex brokers, he says. “Thus, it’s critical to choose a reliable forex broker or brokerage if you wish to start trading during volatile times.”
There are many fake brokers out there, Mawas adds.
“Ensure your broker is licensed and offers you a trading platform that includes sophisticated analytical tools and options which are easy to use. Also, make sure you choose traders who are passionate about who they are and what they do, as they are most likely to be the best.”
The future remains uncertain as there is too little data available to make solid future predictions, he says.
“There will be further ‘wave’ outbreaks in the upcoming months and years and many underlying causes affecting currency will remain in effect or re-emerge as soon as COVID-19 cases increase. Lockdowns and social distancing mean market volatility will remain high, and remote work will keep traders focused on forex markets,” Mawas concludes.