Many internet traders have turned their attention to the cryptocurrency market, which offers more volatility and the possibility for massive gains than the FX market did a few years ago.
As governments and central banks worked to mitigate the pandemic’s effects, financial markets became more volatile. Volatility in the market was enhanced by the revelation of macroeconomic data, such as lower interest rates or a rise in unemployment.
Cyclical stocks and markets were influenced by the pandemic depending on whether their sector was affected favorably or adversely. As an example, industries like hotels, which rely heavily on summer business, lost a significant amount of income due to the pandemic’s duration.
As the epidemic has lasted more than a year, all stock and market cycles have been impacted.
Trading in safe-haven currencies and commodities made gains throughout the interruption, even though markets fluctuated. Crude oil’s shifting demand was used by other dealers, as well.
Due to forex’s superior stability, many crypto-currency traders have shifted their focus to this market. Cryptocurrencies offered the thrill and volatility that traders needed before to the outbreak, but they now look much too hazardous.
Causes Of Forex Trading Increased Popularity During Pandemics
World economy is in disarray due to the coronavirus epidemic. The long-term effects are yet unknown, with some predicting that things might become considerably worse in 2021. In contrast, several of today’s financial markets are thriving, much to the astonishment of many. In the foreign currency market, this is the case. Since the outbreak of the pandemic, the volume of trade in the Forex market has surged by a staggering 300%, according to the latest reports.
However, on the other hand, the effect of coronavirus is extremely serious and severe, with a high degree of volatility owing to a general sense of fear. In the FX market, many investors are already seeing significant chances. One of the factors that contributed to the popularity of Forex trading was the incentives offered by FX brokers. During pandemics, many FX brokers were concerned about losing business because of the economic turmoil. As a result, numerous brokerages began to provide Forex bonus to traders in order to attract new clients and retain existing ones. Traders may make more money by using Forex bonuses. It all relies on the kind of incentive offered by the FX broker. Apart from that, unemployment is one of the most significant causes. From an economic standpoint, the pandemic’s expansion has resulted in greater employment losses than the recession of 2009.
The effect of the coronavirus epidemic on large organizations is clear. Their Asian operations, notably in China, face serious issues and may have to be shut down. GDP growth slowed as a result of these occurrences.
The currency exchange market was also affected by the surging stock market as a result of the dollar’s role as the world’s global reserve currency and its consistent strength.
Developing areas including Southeast Asia, Eastern Europe, and Africa are expected to see a significant surge in Forex trading in 2020.
Since the coronavirus epidemic began, the link between bond prices and implied volatility in the FX market seems to have been broken. The FX market became more volatile as yields continued to fall.
There were arbitrage opportunities in the currency market, which is still quite liquid, at the rate of the coronavirus. The dollar’s value climbed against a number of safe-haven currencies almost immediately.
The yuan, the Chinese currency, has recently shown itself to be exceedingly volatile when compared to the dollar. It was towards the end of February when the USD/CNY rate surpassed 7.04, then fell down below that level at the beginning of March, and then soared back over that level again. Beijing’s choices in the next weeks and the monetary policy activities of Chinese authorities will have a significant impact on the development of this currency.
When it comes to currency swings, it’s important to take into consideration the forthcoming US election.
It used to be that the summer of 2020 was peaceful and characterized by narrow trading ranges. This year, however, things have changed. July saw a high of 1.19 for the EURUSD, which came after a series of reversals.
Even if recent events have nothing to do with the US election, EUR USD’s 10% increase may be a prelude to the major event. Today’s elections in the United States are more significant than ever before. When it comes to dealing with the health problem while keeping economic measures in check, it has an impact on the whole planet. Only the United States is capable of assuming the reins of power in times of crisis.
Impact For Future
A recent analysis by Greenwich Associates, a financial services firm, suggests that the worldwide pandemic has irreversibly changed the structure of foreign currency markets.
According to a Greenwich Associates report, “The pricing and flows are returning to normal,” but “the way in which those prices are discovered and flows are channeled have shifted significantly during the COVID-19 pandemic.” The report was based on interviews with 147 forex investors around the world in June and July of this year.
According to Monahan, the outbreak of the pandemic prompted a rise in trading activity via single-dealer platforms and phone trading, as investors increasingly valued their connections to forex dealers and others in the industry as liquidity dwindled. During the global financial crisis, investors began to break up bigger deals and postpone the execution of contracts, he added. These behavioral modifications are expected to continue after the crisis is over.
With forex markets now almost totally computerized, over 20% of those interviewed in the study stated they boosted their usage of voice trading in response to the epidemic, a finding the researchers termed “extraordinary in context.”