- The 2020 US election was the most important event of the year, considering its outcome will shape US politics for the next 4 years, with significant consequences on financial markets and the global economy.
- TRADE.com offers access to a comprehensive list of indices CFDs, including the top US indices, enabling its customers to get involved and find trading opportunities before and after the election.
The 2020 US Election – major dual event over
November 3rd is now on the rearview and although as it looks the Democratic nominee has won the Presidential race, there is still some uncertainty over how the transition of power will occur. So far, the Republican side remains committed to challenging in court the tight result and until everything will settle, doubt will continue to rule.
The election had been what experts call a dual event” and because of that, financial markets were pricing in the elevated uncertainty. Prior to November 3rd, the Volatility Index (VIX) spiked towards 40, as investors were buying insurance. A change of power at the White House was expected, given the handling of the pandemic and more important, the economic situation.
When the economy is in a recession, voters generally go for a change of power. Due to the COVID-19 pandemic, the US economy is projected to contract by approximately 3.5% based on the latest IMF numbers, while the unemployment rate (U3) currently sits at 6.9%.
Politics had always been unpredictable, which is why CFD traders working with TRADE.com should become more conservative when trading these events, given markets had a completely unexpected performance after the election.
US indices volatility will continue to drop?
The Nasdaq100, S&P500, and Dow Jones Industrial Average had a wild run in 2020, dropping by more than 30% during the March selloff, only to recover afterward. Tech stocks had been favored by the pandemic, which led to new all-time highs in the Nasdaq.
Blue-chip stocks like Apple, Microsoft, or Amazon, had pushed the S&P500 above the February all-time highs as well, and Dow Jones has been the only underperformer, due to the industrials and energy-related companies that had to suffer as the pandemic rattled economic activity.
For the past few weeks, financial markets had been focused on stimulus talks, given that a new $1.8 – $2.2 trillion package could boost stocks even further. As the prospects for new stimulus vanished right before the election, the market turned its attention towards pricing in election-related risks.
Once the election was settled, the VIX slumped and all three major US indices started to rally. Although it is very likely there will be a new President, a divided Congress will keep the “gridlock” in place for another 2 years, making it extremely difficult to implement fiscal reforms.
TRADE.com indices offer
Considering trading on indices CFDs had been on the rise for years in a row, TRADE.com, one of the leading brokerage houses, had managed to develop a well-diversified offer, including a comprehensive list of stock market indices from all around the world.
People who trade indices CFDs at TRADE.com can benefit from 26 core global indices covering the major economic regions, with a 24/5 trading schedule. Although it does not accept residents in the United States of America as customers, the broker is supporting all the major US-based indices and enables traders from all around the world, in particular Europe, to take advantage of the US stock markets.
Its indices CFDs offer continues to increase in popularity, mainly due to tight spreads, competitive leverage for both retail and professional traders, as well as the innovative and diverse trading software.
Managing risk professionally
By drawing a line under the 2020 performance, CFD traders will notice that several lessons should be learned. Even though stock market indices are generally less volatile than individual stocks, when uncertainty arises, the correlation between assets increases and prices move impulsively in a single direction.
All stock market indices, including S&P500, Nasdaq100, and Dow Jones, continue to remain volatile, raising the importance of using strict risk management rules. With the post-election uncertainty still elevated, fundamentals will continue to weigh small for investors, making technical and emotional trading the main drivers for valuations.
Professional traders always put risk first and only then focus on the reward and based on this mindset, some of the trading opportunities that are due to arise won’t be optimal from a risk/reward perspective.
Brokers such as TRADE.com encourage traders to pay close attention to risk management, not over leverage or overtrade, and get involved in the market with an objective mindset.
The US election is now over but its implications on indices valuations can’t be anticipated 100%. As a result, it would be appropriate to keep an open mind, stick to a well-established rules-based trading system, and navigate the market responsibly.
CFDs and spread bets are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89 % of retail investor accounts lose money when trading CFDs and spread bets. You should consider whether you understand how CFDs and spread bets work and whether you can afford to take the high risk of losing your money.