Coronavirus has caused panic and health scares across the world and is one of the most covered topics in the media at present.
As a ripple effect of the virus, the financial markets have also been badly hit with cryptocurrency and stock prices falling. This in turn has affected investments for Forex and CFD market traders.
However, is the situation all bad news for Forex&CFDs Trading?
To investigate further, we’ve taken a look at how Coronavirus has affected trading so far and what you can do to make the most out of the market changes.
Let’s get started!
Coronavirus and Market Impact
Since the first cases and reports of Coronavirus (also known as Covid-19) emerged from China, the financial markets have been affected by the situation.
Coronavirus is highly contagious and transmitted virally from humans to other humans via air droplets and surfaces. Originally the virus started in China but has now become a pandemic with new infection cases spreading around the world.
Governments have tried to control it by implementing quarantines, first in the province of Hubei in China where the virus first started. Now the whole of Italy has been placed in a quarantine lockdown as a way to contain the virus.
The affect of the quarantine has caused factories and businesses to shut down so that workers can stay at home. For example, giant technology companies like Microsoft and Apple have factories in China.
These factories have then closed and affected the supply chain, which in turn has caused the Apple and Microsoft stock value to drop.
However, it’s just not these companies that are affected, all the stock markets have seen lots of market volatility. In fact, on the 9th of March the financial markets reached their lowest levels since the recession days of 2008.
Because market analysts cannot predict how the virus situation will develop, this has caused more investor uncertainty in the markets.
Which Markets Have Been Affected?
The complete financial market has been affected, but commodities like oil and the global stock markets have been badly affected. Many investors have been selling their shares due to the situation, especially as investors traditionally view shares as the ‘riskiest’ forms of assets to own.
More panic hit on ‘red Monday’ the 9th of March when the FTSE 100 fell by 3.3 percent and Wall Street saw steep stock market falls.
There have been talks of a global recession, but it depends on how the stock markets perform in the next few weeks.
Another key market that has been affected is the commodities market. Gold which has always been seen as a ‘safe’ commodity to own during turbulent times has reached a 7-year price high.
Whereas Oil prices have dropped dramatically by a third, which is the biggest drop since the Gulf War.
Of course when the financial markets are struggling, countries economies and GDP will also be affected by the ongoing virus crisis. Which means that currency values will be weakened too, which in turn affect the Forex markets.
The impact of Coronavirus will be felt on the Forex and CFD markets as a result of the market turmoil. Fear has been a big factor behind investors decisions to sell stocks, and many Forex traders are likely to take the same cautious actions with their trading strategies.
No investors want to keep hold of risky assets and will follow strategies that favour less risk. Even there is no official recession, the fear that Coronavirus will lead to a financial crisis is in the minds of every trader.
Avoiding the Market Risk
Although it’s normal for Forex traders to be concerned in times of market trouble, the trick that many investors follow is to estimate which assets are the riskiest and to analyse which are the safest.
That’s because some markets will be hit harder than others, it’s always ‘Risk vs Less Risk’.
So if you’re an active Forex or CFD trader, you can also apply the same strategy to minimise the risk to your trades.
To help you out we’ve also examined some of the perceived ‘safer’ assets and Forex currencies that could be a good option as well as the riskier ones in this current climate.
Let’s take a look now:
Coronavirus Trading Forex
The Forex market reacts in accordance to the price behaviour of the national currencies, but how will Coronavirus affect Forex?
Well there has been a rush on JPY over the last few days, mainly because the Japanese Yen is considered a ‘safe haven’ currency. Especially when compared against riskier currencies like USD or EUR.
Usually when there has been a worldwide economic crisis it’s the Japanese Yen that has appreciated in value. In the months leading up to Coronavirus, the Japanese economy was fragile with their GDP figures looking to be on shaky ground.
Yet with the USD struggling against plunging U.S. Treasury yields and Coronavirus recessions fears, the JPY has become an attractive currency asset in the eyes of traders.
So it will be worth watching whether the USD/JPY pairing will continue to follow the downward trend as it reflects the latest market movements.
Coronavirus Trading Commodities
Trading commodities as CFD’s is very popular with online traders, and the Coronavirus is likely impact various commodities in the upcoming weeks.
Already the price of Gold has soared whilst Oil has reached a new historic low. Besides the virus, the Oil prices have also been affected by failed price negotiations between Saudi Arabia and Russia. One barrel from Nymex Crude Oil reached a new low price of $31,13 on Monday.
This plunge in the Oil value has caused traders to invest their money in Gold instead.
Metal commodities such as Gold have always been seen as ‘safe’ assets to own during times of financial trouble. So it’s no surprise to see that Gold is doing so well.
Silver however is still getting hit badly, with recession fears dampening the traditional industrial and manufacture demand for Silver.
So whilst it might be wise to sell Silver and Crude Oil at present, Gold remains a more stable commodity in times of unrest.
Coronavirus Trading Shares & Stocks
With the stocks and shares market being affected worldwide, people who are trading stocks as CFD’s have also been observing the activity.
Of course with CFD’s (Contract for Differences) you don’t actually own the shares, instead you are just placing trades based on what you think their price behaviour will be.
For instance, if you think that the price of let’s say Microsoft stock will go up, you set your trade to buy.
Or if you think that the Microsoft stock price will go down, you set your trade to sell.
If the real life stock performance goes in the right direction, you’ll make a profit on your trade. That’s what is great about CFD trading, you can make potential earnings even if the global markets are wobbly.
Wall Street, DAX and the FTSE have all seen stocks plummet in the wake of Coronavirus. Air travel and hotel companies have been especially affected with the virus putting off travellers from booking holidays.
Microsoft and Apple have also seen their normally strong shares drop too. This is mainly due to their factories closing in China and causing a supply problem. Although with them being a strong company it’s likely that they will recover in the long-term.
However, supermarkets and retailer shares are doing well because of people panic buying supplies in the event of a quarantine.
We would recommend that you observe the stocks market regularly and think about how the coronavirus is likely to affect certain share markets. You can then make an educated guess on how you think the stock will perform.