The Art of the Trade: Why trading education is vital in the current climate

By Stavros Lambouris, CEO at HYCM International

Stavros Lambouris, CEO at HYCM International

In an increasingly volatile economic landscape, it’s vital that traders are equipped with the best tools possible to make the most of their investments. As such, trading education and support are more important than ever.

With inflation expected to rise to 7% in the spring, an increase in interest rates and the threat of a wage-growth spiral, it’s fair to say it’s a tricky time for investors. Although global economies have rebounded since the height of the pandemic, conditions remain difficult for consumers, while traders and investors have had to grapple with continued supply chain issues and surging energy prices. With the energy price cap set to increase in April, it is likely that there are more complexities ahead.

Yet, there are still plenty of opportunities for traders in the current climate. While an increase in inflation and interest rates might make saving money seem like the most attractive option for some, with proper training and support, traders and investors should be able to identify new opportunities in the markets as we ride out the current economic state of play.

So, how can traders be best supported?

Firstly, having access to a reliable trading platform from a broker that offers a range of account types for all trading styles and low spreads will make all the difference for traders, providing easy access to markets and competitive trading conditions. In short, this will make for a more equitable experience, where traders of all levels can put their best foot forward and focus on the nuances of trading.

For example, the various training programmes that supportive brokers like HYCM offers, such as webinars, workshops and access to market analysis via our blog HYCM Lab can help traders gain a healthier grasp of trading. Understanding exactly what moves the markets, be it monetary policy or a changing political landscape, will help traders predict how their assets will react to central bank announcements or election results.

Navigating the latest market trends

As well as this, access to professional tools and a community of traders can be hugely beneficial to traders. From Seasonax to Financial Source, traders should be equipped with as many tools as possible to improve their ability to react quickly to changing market conditions. For one, having a good handle on news analytics and technical analysis can help traders to sift through potentially conflicting perspectives, allowing them to optimise the right time to buy or sell.

It is particularly important to note here, that unlike traditional investments, success in trading can often come from short-term themes and rapid reactions to news events and current affairs – this is particularly true for day traders. Indeed, the ability to glean insights about market movements and developments in real time is essential, especially for those looking to use leverage. In these cases, the support of real time market information can also help traders increase their position beyond what their cash reserves would normally allow.

Most individuals will be aware that current market conditions are challenging to say the least, so traders would benefit from keeping their training up to scratch when it comes to trading key market trends. One dominant theme at the moment is low interest rates and quantitative easing timelines, which can make for some lucrative trading opportunities. As central banks aimed to make financial conditions as flexible as possible throughout the pandemic, many reduced their interest rates and offered generous quantitative easing programmes to stabilise their respective economies. Now, many financial institutions are looking to reverse these actions – consequently, stock markets are currently trying to balance strong earnings against concerns about how the withdrawal of Covid related stimulus will affect inflation.

For the major central banks, it looks as if hiking interest rates will be their course of action to battle inflation. Naturally, different nations will proceed along different timelines when it comes to increasing their rates, and typically, this means volatility for the markets. Although some might think that this spells disaster for investments, as high inflation bites into the spending power of traders’ money, the contrary is true. As central banks hike at different times, this will create a disparity in currency strength and weakness. These differentials increase market volatility which, despite the negative connotations, is good news for traders, creating a whole host of new opportunities for currency trading.

That said, while rising interest rates do not necessarily mean ruin for the financial markets, it is vital for traders to keep the pace of such hikes in mind by consulting an analyst, or by making use of the many features available to them within their trading platform. If inflation is seen to be surging too quickly based on CPI figures, then traders and investors may expect to see aggressive action from the Federal Reserve in particular. This hypothetical scenario would weigh heavily on stocks, so traders would do well to monitor these events.

Back to basics: mitigating risk and using leverage

When it comes to mitigating risk against this backdrop, even the most experienced traders stand to gain by going back to basics. Although it may seem obvious to note, choosing a reliable broker, and keeping their trading knowledge up to scratch can be hugely beneficial. Selecting only brokers regulated by the Financial Conduct Authority (FCA) in the UK, for example, as well as having the necessary measures in place to ensure the safety of their data and funds would make for a good first start.

From a technical perspective, it is also important to acknowledge the role that leverage can play in trading. As I have already noted briefly, one of the biggest benefits of trading Contracts for Differences (CFDs) and forex is that investors can use leverage to maximise their capital investments. Traders can take on a greater position in a stock, for example, by using credit provided by a broker, so that he or she only has to pay a percentage of the value of the transaction. Although this can result in greater profits, undoubtedly, it is a double-edged sword. As a rule of thumb, I would advise traders to have a clear sense of where to exit a trade. Keeping the rule, ‘never over-leverage’ at the forefront of your mind is very important indeed – if a trade turns into an investment, traders risk losing a substantial amount of money. For many traders simply trading without any leverage at all would be a sensible move. This is because it is the misuse of leverage which can often result in large losses for the retail trader.

Ultimately, traders will have many factors up for consideration at the moment when it comes to devising their strategy. As such, it is essential that individuals do what they can to brush up on their knowledge.

High-Risk Investment Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 72% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. For more information, please refer to HYCM’s Risk Disclosure.

About Author:

Stavros Lambouris is CEO at HYCM International – an online provider of forex and Contracts for Difference (CFDs) trading services for both retail and institutional traders. HYCM is regulated by the internationally recognized financial regulator FCA. HYCM is backed by the HYCM Capital Markets Group established in 1977 with investments in property, financial services, charity, and education. The Group via its relevant subsidiaries have representations in Hong Kong, United Kingdom, Dubai, and Cyprus.