How to manage your forex trades during the cost-of-living crisis
As the UK is hit with a cost-of-living crisis, there have been, and will likely continue to be several aspects of our lives affected.
One of the most important among these, is the way we handle our financial investments.
As prices climb universally across a range of different consumer industries, and our wages are failing to adequately manage the new expenses, we naturally have to adapt how we structure our investments.
The foreign exchange (forex) market is one of the financial markets affected most by the cost-of-living crisis.
To help manage your forex trades during these economically uncertain times, there are a few things you must ensure you’re incorporating into your forex trading journey, two of which are absolutely pivotal.
Read on, to learn how you can better manage your forex trades during the current cost-of-living crisis, with these two essential trading tips.
Implement risk management tools
Risk management tools are essential for all your forex trades throughout your entire trading journey. More so, when the nation is experiencing a cost-of-living crisis.
In times such as these, the economic state of the country can be unpredictable, leading to the performance of the forex market reflecting the same nature.
Therefore, with a market that can be more volatile, it’s important to have risk management in place to mitigate the fallout of any unsuccessful trades.
Removing loss completely is impossible, as this is simply a part of trading. However, with the right trading platform offering risk management tools, it can be the difference between some simple, failed trades, and a detrimental mountain of losses.
For example, you could include automatic orders in your forex trades.
This means that when you have an open position on a currency pair, you can set a specific value that the trade will close at, should the asset price fall below it.
This allows for you to manage risk more effectively, even when you’re not present on the platform at all times.
The forex market is open 24-hours a day, from Sunday to Friday, so having a tool like this is highly beneficial for the periods you’re away and the market is still active.
This way, any losses you may receive from a failed trade will be prevented from exceeding past damaging amounts.
With minimised risk on every trade, you’re much more equipped to manage the uncertain performance of the forex market during the economic crisis.
Watch for the inflation rate
A huge component of the cost-of-living crisis is the inflation rate.
As the UK’s prices rise, the average value that a single Pound has in the supermarket, for example, decreases.
Essentially, what you could buy with this Pound last month is not much less for this month.
But what really feels the impact of rising inflation is the forex market, for the value of a currency in the midst of a cost-of-living crisis is almost sure to start struggling, if not fall drastically.
Considering this will heavily determine the accuracy of your trades, it’s vital that you monitor the inflation rate and how it’s affecting the forex market.
For example, the rate of inflation has been climbing rapidly, and in the first quarter of 2022, it rose by 4.4 on the Consumer Price Inflation Index including housing costs (CPIH) – the most comprehensive measure of inflation.
In this same period, the value of the Great British Pound (GBP) against the United States Dollar (USD) fell rapidly from $1.35 to $1.31.
As inflation still climbs, at the time of writing (June 13th) the value of the GBP/USD is now $1.22.
Ensure you conduct thorough technical analysis of the forex market before, during, and after each trade, to maintain a keen eye on how the inflation rate is influencing the values of various currencies.
This way, no matter where the cost-of-living crisis takes the country, you’ll be equipped to analyse, anticipate, and adapt your trades to accommodate the economic changes.
By incorporating these key tips into your trading journey, you’ll be able to better manage the uncertain behaviours of the forex market during the cost-of-living crisis. Paired with the right trading platform, you’ll possess all the tools for a more profitable trading experience.
