With the outbreak of global pandemic COVID-19 and its rapid spread across the globe, there has been a widespread panic over how it will affect the global economy. Traders are speculating as to how this will affect the forex market.
It is quite surprising that the forex market has remained quite stable as compared to the other markets. The main currencies driving this market are Euro and USD and February 2020 saw a value-added to Euro due to the outbreak in Italy. Since March 2020 there has been a daily movement between 100 to 300 pips on EUR/USD.
Although there is a lot of uncertainty about how the forex market will respond to COVID-19 still there are still several reasons that could lead to a profitable trade in this market.
5 Reasons Why Forex Trading is a Profitable Solution During COVID-19
#1. Traders will Resort to Hedging
Traders at this time want to limit the funds that they will lose in other markets. This will lead to multiple investments to earn greater profits from their strengthening assets. As the exchange rates fluctuate significantly, they want to lock exchange rates in the forex market. So, the investors are following forex tips that will help them to hedge the investment.
#2. More Investment in Safe Haven Assets
Many traders are opting to trade in the forex market particularly in safe-haven currencies in order to earn profits during these volatile market conditions. Although this strategy needs to be carefully monitored, so keep a close eye on forex signals.
While investing in such currencies it is important to protect gains. A well informed trader will set profit targets and use a trailing stop to ensure that their winning position is not converted into a loser position.
#3. Increase in Inflation
Countries deposit large quantities of reserves with central banks in order to maintain the stability of the economy. These reserves are usually invested by banks in the forex market. During COVID-19 as a country’s economy sees a decline, the interest rates stand reduced which causes a fall in exchange rates of currency.
As soon as the economy enters such a position, inflation rates will increase which will increase interest rates and thereby increase demand for the currency. This leads to profit in forex trading of that currency.
#4. Switching to Cryptocurrencies
Higher volatility can sometimes lead to higher profits. So if rapid and deep falls in currencies in the forex market seem too small you can switch to cryptocurrencies that are a lot more volatile and allow trading without weekend gaps.
In forex trading, higher leverage leads to bigger profits. So the investors who are adjusting leverage to forex account for wider movement of market price will have increased profits.
COVID-19 is clearly having a huge impact on financial markets. Therefore it is very important to monitor the risk management strategies employed by you during this pandemic. Such strategies should be in line to meet the challenging trading environment. If you invest wisely in this market, it can turn into a profitable avenue even during this time.