7 Aug 2020
When New York confirmed its first cases of COVID-19 in January 2020, US stocks tumbled. For the next few months, uncertainty continued to grow across global financial markets as the number of confirmed cases mounted. Then, on 11 March, the declaration of a global pandemic by the World Health Organisation sent markets into a full-blown panic.
This negative sentiment has made the forex market extraordinarily volatile this year. For example, take the two most popular currency pairs in forex trading: EUR/USD and GBP/USD. The average monthly range for EUR/USD is 250-350 Points in Percentage (PIPs) per month while GBP/USD is 600-700 PIPs per month. But in March, EUR/USD crashed to around 900 PIPs in the space of just eleven days. It rallied sharply at around 500 PIPs a week later. We saw the same pattern with GBP/USD, which tumbled to roughly 1800 PIPs in only eleven days and then rallied at around 1000 PIPs the following week.
This period of high volatility has a silver lining. Many of our clients at FirewoodFX have been able to use the volatility – and the extended range it has created – to their advantage. Remarkably, one of them even managed to book a 55,000 percent profit in the space of just a week. In short, our clients have been able to make superb returns during the instability of March 2020, thanks to FirewoodFX’s excellent liquidity and rapid execution.
A wise investment
Certain business sectors have been badly affected by the pandemic. Many organisations have seen their revenue streams hit hard as a result of lockdown measures and plenty of them have unfortunately had to make redundancies or shut down their operations.
But forex brokers have been largely unscathed. This is because forex trading can be carried out anywhere in the world. In fact, as our clients’ success stories demonstrate, trading forex is one of the most profitable things a person can do during lockdown.
This doesn’t mean there aren’t challenges that accompany today’s extreme volatility. For instance, markets have had very low liquidity during the pandemic. This can increase traders’ exposure to slippage, which occurs when currency prices change while an order is being placed. As such, traders are at risk of running into unwelcome surprises, unless trading is carefully handled by their broker.
FirewoodFX is well-placed to help its clients overcome this problem. We work with top liquidity providers in order to give the best price feeds for our clients. Moreover, our servers are hosted in Equinix’s NY4 data centre, a state-of-the-art financial facility that provides no requotes as well as very fast order execution in a matter of milliseconds. As such, our clients can enjoy the high levels of sophistication needed to navigate markets with low liquidity and high volatility.
Adapting to the new normal
The pandemic has reminded us all that good health is one of our most valuable assets. More specifically, it has reminded employers just how important their workforce’s health and wellbeing really is. At FirewoodFX, we support the #stayathome policy and have made it possible for our employees to work remotely.
When we first took this decision, there were some aspects of our business operations that needed adjusting. But thanks to our strong work ethic, innovative leadership and good communication, we have successfully transitioned to remote working and will continue to provide the best services for our clients in this new arrangement.
Another lesson the crisis has taught all of us is that nothing lasts forever. All businesses must be prepared to adapt in times of extreme pressure. Although we have no way of knowing when the crisis will end, one thing is certain: this new normal is here to stay. In order to survive, businesses must embrace digital transformation and make their operations more flexible while continuing to provide the best service to their customers. FirewoodFX is committed to doing exactly that. We will strive to ensure that we emerge from this pandemic even stronger than we came in.
The future of forex
The coronavirus crisis hasn’t just transformed the way we work. It’s also changed the global forex market more broadly. There has never been such strong turbulence in the financial world like that we are seeing in today’s crisis. All asset classes – from commodities to currencies – have experienced extreme volatility due to the pandemic.
Many experts predict that the economy will not recover quickly. It’s more likely that we will see prolonged economic turmoil which will force governments to continue issuing emergency measures. Accordingly, the global forex market shows no sign of stabilising. But, as we’ve discussed, there are opportunities here for those who are willing to find them.
As calm gradually returns to the financial markets, investors should continue to trade in forex. The forex market remains the largest and most liquid in the world, accounting for more than $3trn of daily trading. There are numerous trading strategies that can be applied in different market situations and the flexibility of forex trading is what has helped it become the biggest market in the world. We believe that traders or investors will always have a chance to become profitable, provided they educate themselves on forex and apply their learnings with high levels of discipline and good money management.