For many people, the ongoing coronavirus pandemic has been a time of upheaval. As well as the social and health costs of the pandemic, there’s also been a cost when it comes to money. Many people are facing a period of unemployment or hardship, and some have turned their hands and minds to forex trading as a way to make some extra cash. But is it a good move during such an unprecedented time of crisis? This article will explore the issues.
Forex is different
Some financial experts might recommend that a financial crisis is the best time to buy some types of asset – at least those that have good track records. On the face of it, a drop in an overall market’s value seems like a peculiar time to buy up assets in the market, because they’ve essentially revealed their volatility. But the reality is that buying assets while they are cheap could turn out to be lucrative because they may shoot back up in value once the crisis is over. “Buy low, sell high” is a rule of thumb used by some traders – and while there’s never any certainty in any market, non-granular and market-wide investments like stock market trackers do often end up rising again. If a trader doesn’t need the cash for a while, then a pandemic could be a good time to strike.
Foreign exchange is not quite the same, though. That’s because on this market the assets are traded in pairs. When traders speculate on currency price moves, they do so by predicting the value of one currency in relation to another – predicting that the US dollar will rise or fall against the Japanese yen, for example, or that the single European currency will move up or down compared to the British pound. For this reason, the forex market as a whole doesn’t dip wholeheartedly in a crisis and different currencies shoot up and down when a crisis hits. Forex traders are often forced to “pick a winner” rather than rely on the sentiment of an overall market rising again, so the “buy cheap, sell high” advice that may apply to some other assets during a crisis is not as simply implemented here.
Is cash king?
During a period of crisis, cash is often in high demand. That’s because most investors, including both individual retail investors and high-end institutional ones, have bills to pay and financial obligations to meet. Tying up cash in forex investments, then, might not always be the obvious answer. Some people follow a rule of only trading what they can afford to lose, and if cash is scarce for you during the crisis, then it may be worth holding off.
That is a decision for every individual trader to make, and some may judge the potential to make profits as being more important than hoarding cash, especially with interest rates as low as they are. With that in mind, it’s always worth reading forex broker reviews. That way, you’ll be able to reduce the risk of falling victim to a scam broker, something that has the potential to wipe out any profits you do happen to make.
The role of the dollar
As in so many aspects of modern life, the US, in some ways, rules the roost when it comes to forex trading. Its currency, the world-famous dollar, is known for being highly liquid – which means that it is accepted as payment almost anywhere. There are plenty of people who want to get their hands on US dollars, and that means you can sell your holdings in the currency reasonably easily.
When the coronavirus crisis began, traders flocked to the dollar in their droves – most likely for this reason. Whether or not dollars will still be as desirable as the immediate economic concerns come to an end, however, is anyone’s guess. For that reason, to come to an informed decision, it’s always worth checking out financial data, price charts and more.
While there are no guarantees in any market, trading foreign exchange pairs is one possible way to make some extra cash. There’s no firm right answer to the question of whether or not trading forex during a crisis is a smart move, and it depends mainly on your attitude to risk. But by educating yourself about the market, understanding how pairs work and doing some research on the most pressing risks, you may well judge that the pandemic is the right time to get started in this exciting and dynamic market.