Now that the new COVID-19 pandemic is raging through the world, markets across the globe are undergoing serious financial disruptions. And since the Forex market is nothing more than individuals making financial decisions to benefit their general well-being, their fear of getting infected is what’s disrupting exchange rates during financial crisis and eventually leading people to losses.
Two modes of behavior
The reason for this crisis lies within our psyche. We humans have two modes of behavior: the one for normal living conditions and the one for disruptions in normal life. When life goes according to how we’ve planned it, our brain functions “properly”, that is, it doesn’t panic every time something new pops up. We’re relaxed and go about our lives undisturbed. The same is true for financial markets: there are conventional ups and downs in prices but nothing too drastic.
However, the moment things go south and our plans for the future go up in flames, the anxiety and panic start to overwhelm us; we’re not used to this pattern of life and everything new acts as a danger to our very survival. For that reason, we go in a defensive mode: gathering everything dear to us within close range and seldom interacting with the outside world.
This is the answer to what affects Forex market, as well as other sectors of financial exchange. During an economic crisis, there is far less activity on the market as people are afraid they’ll lose all their belongings. The real panic strikes when market participants start liquidating everything they own and sit on the cash. This was the case in the notorious “Great Depression” of 1929-1933, the Financial Crisis of 2008, and now the COVID-19 outbreak of 2020.
COVID-19 and the economic crisis
Now, the COVID-19 pandemic is certainly devastating, with the Coronavirus stats counting around 3.5 million infected people and hundreds of thousands of deceased. 4 months after the initial outbreak, the global economy has already experienced one of the most acute financial crises of the recent past, with all the major indices, strongest currencies, and most popular commodities also undergoing a serious downfall.
In South Africa, there are more than 3,000 confirmed cases of infection and over 50 deceased people. Considering all this, coupled with the decline of commodity prices that are among the main drivers of the South African economy, and we’re getting a serious downfall in the country’s current, as well as the upcoming economic life: the World Bank GDP growth projection gives us no more than 0% at the most while the worst-case scenario is well within the -6% range.
Forex Trading in South Africa during the crisis
All that being said, however, not all hope is lost after all. As a Forex trader from South Africa, there are ways for you of not only coming out of the current crisis unharmed but also making use of it to your advantage, including finding Forex brokers in South Africa with bonus and proper regulatory measures. We have prepared 5 quick tips for you to boost your Forex trading game in these crazy times:
- Trade without panicking – this is the most essential tip in trading, whether you’re doing this during the financial crisis or not. If you feel like everything you do is going to harm you or your relatives and if you’re anxious all the time, you should definitely stay away from Forex trading as it requires full mental presence and concentration. And don’t worry – you’ll still have the opportunity to trade and be profitable again;
- Be prepared for drastic moves – as a rule of thumb, you should expect that the upcoming move is going to be at least as big as the biggest move the price made during the crisis. In stocks, for instance, it’s definitely possible that the market declines by more than 50% in a short period of time; the same can be true for what happens to dollar during recession – even though it is the universal currency used almost everywhere;
- Trade at the beginning of the crisis – usually, the first few days of weeks in the crisis are the most panicky of all; people are struck by a virus (or anything devastating like that) that they have never seen or encountered with. This tends to translate into the most drastic market movements that Forex traders, as well as those trading other securities, can use at their benefit;
- Go short with your weak asset – during the economic crises like the one we’re witnessing right now, it’s almost no-brainer to place short positions instead of long ones. That’s because the prices are going down due to the declining demand and the only beneficial position at this point is to sell an asset. In Forex, where the governments’ positions directly translate into the strength of a currency, you should go short with the weak currencies and go long with stronger ones like CHF, USD, or JPY. This way, your position will have a stronger asset to gain from;
- Don’t go big – you should always place smaller positions than you used to during normal trading times. It’s understandable that you feel like this next move will earn you a jackpot but unfortunately, that rarely ever happens. So, keep the positions small and be safe. On top of that, you should also keep the stop loss relatively tight. This will save you from unexpected moves against your position and large losses.
A bonus tip would be to find regulated Forex brokers in South Africa; those that take customer safety above anything else, especially their own gains. This makes sure your funds are safe, be it during a crisis or regular times.
Keep your trades profitable at all times
The COVID-19 pandemic has struck us real hard. It showed us that just when we feel the safest and confident, nature can deal a deadly strike that cannot yet be stopped. Yet while this pandemic has certainly damaged financial markets across the world, traders of foreign exchange from South Africa can still take some steps to maintain the profitability of their positions.
The above-mentioned tips certainly don’t cover everything successful Forex traders in South Africa, or any other country for that matter, should take into consideration. However, with their help, it is possible to turn an acute financial crisis into a beneficial factor for your trades.
Just remember that you should maintain your reason at all times, be prepared for drastic price moves, try to jump at the opportunity right at the beginning of the crisis, place short orders on your weak assets, and place them in a smaller size. This way, your positions will be safe and profitable all at the same time.