Forex: the changing currency market
Since the Covid-19 pandemic hit the whole world, its shockwaves have seriously weakened the global economy. For many, this represents the worst economic crisis since the Great Depression of 1929. For the countries of the European Union, the United States, the United Kingdom and Japan, the covid-19 crisis has resulted by a sharp drop in stock prices. That said, the epidemic severely impacted financial markets around the world, but prices were quick to rebound. In this article, we will mainly focus on the case of Forex, a market where all those who wish to buy or sell one currency against another come together.
Forex: what is it referring to?
Before getting to the heart of the matter, it is first necessary to understand the peculiarities of this market. The term FX or Forex (for Foreign Exchange) refers to the foreign exchange market (or currency market) around the world. This is a market where foreign currency transactions take place. More specifically, it brings together various actors including:
Companies (multinationals or SMEs) and, very rarely, individuals wishing to acquire and sell currencies depending on their activities. To access Forex, these players are forced to contact their bank
Bankers (investment banks, commercial banks, etc.) or a forex broker who work both for their own account and for that of ordering clients
Monetary authorities (central banks in particular).
International institutions, including the World Bank, the IMF, the OECD …
Although this market is unregulated, it nevertheless contains regulated categories (very small in size) offering derivative products as speculation and hedging instruments. In any case, Forex is dominated by the USD (US dollar) and is among the most important stock markets in the world.
The foreign exchange market facing the covid-19 crisis
As already mentioned earlier, financial markets, including Forex of course, have nonetheless shown resilience despite the big shock of spring 2020. They owe this resilience to central banks and their policies. More specifically, these organizations played the card of massive purchases of government securities. In doing so, each of the central banks has increased its prices while lowering its “report rate”. The acquisition of financial assets by central banks, on the one hand, resulted in a fall in the “risk-free rate” (a component of the reporting rate) which, in turn, offset the increase in the “risk premium” (another component of the return rate). As a result, prices were suddenly revised upwards. The central bank move on the other hand allowed US economic agents to rebound. As a result, they experienced a significant increase in optimism for future earnings and increased their expectations.
In short, if the health and economic crisis engendered by covid-19 was accompanied by brutal short-term impacts, the stock markets have nonetheless been able to perform well. Their attractiveness in terms of profitability has not only increases. According to experts, financial markets as well as Forex trading were “vaccinated” by central banks and the S&P 500 index was therefore quick to return to its level of early 2020. As for Europe , even if the situation turned out to be relatively mixed, the “Stoxx 600” index (a stock market index comprising more than 600 of the main European stock market capitalisations) managed to recover almost half of its losses.
On the forex market, investors and traders have shifted away from emerging market currencies in favor of the USD. Having performed well since early 2020, the latter has been seen as a sort of safe haven. And for good reason, the USD is the most liquid currency there is and the US economy is less dependent on external demand. Nonetheless, the US Federal Reserve eventually made up for the spread in interest rates in the rest of the world, which significantly weakened the USD.
In concrete terms, we can expect most emerging market currencies to experience stronger gains compared to the USD once the economy and global markets begin to stabilize over the long term. But for now, we have to admit that the foreign exchange market is fluctuating, as the date on which the epidemic will end remains unknown. Forex then remains more or less risky since it is difficult to accurately forecast sales for a given period. This is why, all those who wish to venture there have an interest in educating themselves and practicing upstream.
Forex Trading: the importance of training beforehand
Faced with the wind of uncertainty that covid-19 continues to blow until today as well as the volatility of the forex market that remains evident, people who want to become a Forex trader must of course train before moving on. serious. To do this, they should switch to an online Forex trading training platform. The latter is designed to mimic the real functioning of the currency market and allow apprentice traders to master the basics of Forex Trading, effectively decipher Forex charts and, subsequently, virtually test different types of instruments and strategies with virtual money. In other words, the site will make them a better trader while allowing them to save a lot of money in the long term and invest effectively despite the fluctuations that the forex market has been subject to until today.
The most reliable and efficient training platforms provide budding Forex traders with a rich library of Forex Trading demonstrations, tutorials, articles and other training materials. They also offer their users an intuitive simulator and offer them the possibility of interacting with an online community. After having trained seriously and extensively, aspiring traders can open their Forex account on the same platform and start to develop a strategy as efficient as it is efficient, forecast the market, calculate the ratio of gains / losses on their transactions, trade in full knowledge of the facts…, and get the most out of Forex. You can view the best forex and CFD trading platform with free demo account at https://1broker.org