When dealing with a global economic crisis, there are several things that are important to remember. Economic downturns are a frequent occurrence as economies are subject to corrections, just like assets. When a bigger number of countries experience a downturn simultaneously, it is considered to be a global crisis.
Recent financial crises were triggered by banking panics, and many recessions corresponded with those panics. Other scenarios that are known as financial crises include the bursting of financial bubbles, stock market crashes, sovereign defaults and a currency crises.
Financial planning is the foundation of basic crisis preparedness. Make sure your portfolio is ready for a recession by reducing the stocks to prevent losing too much when things go from bad to worse, and consider switching to dividend stocks or bonds. Reduce your debt starting with debt with high interest, check your spending to determine where you can make cutbacks now and in the future, and increase your emergency savings.
This article will however not only show you how to survive an economic crisis, but how to thrive in one. With central banks globally reducing interest rates, Brexit, and the US-China trade war, it seems clear that we are possibly on the brink of a global recession.
Ride the Trends
Investor sentiment is erratic and that is even truer during a global crisis. Although it is true that it is not the best time to hold onto stocks during a crisis, this is a great time to trade Fixed Time and forex. As the overwhelming trend in the market will likely be down, you can take advantage of this via both types of trading.
If you follow your trading strategy, it will enable you to make the crisis work in your favor. During the 2008 economic crisis, some hedge funds in the U.S. and globally made a fortune by trusting their strategies, and reaping the rewards. From the start of 2008 until March 2009 the overall trend of the S&P 500 was down and the index lost nearly 50% of its value over a year. The one week chart shown below shows the long term trend. Although there were plateaus, the price kept on dropping during the year.
Although fundamental and technical analysis are always extremely important when trading, they are even more so during a crisis. Follow the Economic Calendar to see how national bank decisions, company earnings, and Federal government reports affect assets. During a downturn, bad news can be very profitable for you if you trade the drop.
Buy When the Price is Low
As stock prices drop, buy them at bargain prices. Although this seems simple and it is in principle, the difficult part is to determine when the bottom has been reached. Buying at the lowest possible price is a process.
Investors buy stocks in batches when they believe it will exceed their former value. Traders buy assets in waves as they don’t know when the price has reached its lowest level. Buy assets you believe will recoup their value and grow past it at periodic intervals.
Increased Volatility Can Bring Good Profits
Market volatility is inevitable in times of financial crisis. Money will still flow, even if the market is rocky. While trading forex during turbulent times, make sure you use stop losses to truly capitalize. This tool is used by investors to minimize their potential losses.
A financial crisis will not affected all assets equally. Make educated decisions based on research, and you’ll be able to benefit from the impulsiveness of the markets in both the short and long term.
Trading With Alternative Assets
On Olymp Trade, traders can also profit from cryptocurrencies and their fluctuations. As these digital currencies are not bound by the same factors as commodities, stocks, or fiat currencies, they are much more unpredictable. Investors do however look for assets that will not only maintain, but also increase in value. As they become more popular and are adopted by more individuals and institutions, cryptocurrencies could soar.
In an economic crisis, money can still be made. Commodities, currencies, and financial institutions will decrease in value, but investors that are prepared properly can make huge amounts of money. Don’t worry about the next global financial crisis, but perfect different strategies, practice and be ready in advance.