Increased Volatility Brings Profits For Active Traders


Making reasonable profits during the current world situation might seem difficult to say the least but for Forex traders the increased volatility we have seen during 2020 has been a boon.

Not a day goes by when we don’t hear some momentous news from some part of the world, almost to the extent that this remarkable state of change has become the new norm.

This means that as 2021 develops we’ll see more opportunities for the switched on trader, whether they be institutional or retail day traders.

Remember, forex traders make their money from currency movements and so the more movement there is, the more opportunity to find value.

Political uncertainty

It seems a lifetime ago that day traders would have to wait four years to find trading opportunities that resulted from a US presidential election and the election of Joe Biden appeared to signal an end to the roller coaster that was the Trump presidency.

However, the underlying economic indicators of the US economy show that the short term will still see some dramatic movements.

It used to be said that “when the US sneezes the rest of the world catches a cold” and to an extent that is still true but on the forex market a weakening dollar is good for other currencies such as the Euro and Yen.

In Europe, the progress of Brexit has been watched with keen anticipation for many years now and that is likely to continue as the UK figures out how it is going to be able to trade effectively with Europe and the EU how it will balance its budget without the UK contribution.

For smaller currencies, political events will still make waves and the announcement of martial law and the imprisonment of the political leadership in Myanmar will no doubt have implications for the wider region.

Health concerns

The pandemic has naturally had a significant effect on all economies around the globe and the various responses to the pandemic and its after-effects will, to a large extent, dictate the strength of currencies.

The initial reaction to the pandemic ranged from rapid deployment of health resources to outright denial of any problem.

Gradually, governments began to understand the implications and develop responses but it is fair to say that in some countries such as the US and Brazil, the virus was to a large extent seen as a distraction.

A good example would be the performance of the New Zealand Dollar against the US Dollar over the last year that shows an inexorable rise due to the underlying feeling that the Wellington government has done a good job.

nzd to usd chart

Announcements of new lockdowns tend to depress economies and as a result, the currency.

However we have seen developments of a variety of different vaccines that offer hope for the future and as a result, a way out of the pandemic.

Another area of volatility when the dust settles will be the damage that has been done to various economies and the governmental response to getting back to full speed.

Currency traders will be watching closely to see what the underlying economic numbers show and the sentiment attached to stimulus activities.

Market volatility

For traders that have been using their forex trading accounts for many years, currency trading is an understood and quantifiable market.

As an established market, it runs along recognised if not entirely predictable lines.

However, what we have seen in recent years is the entry into other markets of a new kind of activist.

The recent Gamestop action by smaller traders to defeat shorting of the stock has shown that other markets are vulnerable to attack by well-coordinated groups.

As a result, investors have moved to markets such as forex and metals which are less easily manipulated in the short-term. Largely driven by retail buyers, this movement to the safe havens of things like currency and silver has been remarkable.

The volatility of other markets, especially where this is contained within one specific exchange means that part of that skittishness will be transferred to the currency used and again provide opportunities for traders.

For forex the outlook is good

The next 12 months are set to provide a series of opportunities for forex traders.

The governmental response to the results of the pandemic will be of particular interest.

Will governments borrow more to rebuild their economies or leave it to their respective markets?

Will interest rates rise or will there be sustained action by central banks to keep rates low?

Will the current round of vaccinations defeat coronavirus totally or will we see further strains appear requiring more action?

All of these are questions that could have deep impact for forex and may see investors looking to stable currencies such as the Swiss franc as a safe haven.

Whatever 2021 brings it is sure that volatility in the markets will remain giving forex traders the chance to develop very profitable trades.