04 May 2022

TRADING DURING WARTIME – How does global conflict affect online trading?

Submitted by Kerry
TRADING DURING WARTIME –  How does global conflict affect online trading?

Johannesburg, 4 May 2022: Global markets continue to be rattled by Russia's ongoing invasion of Ukraine, which began to unfold in February. Russia has been hard hit by global sanctions, with the country's currency, the Ruble, falling to record lows and high inflation bringing the country’s financial institutions to their knees. The US dollar is also facing the escalating pressure of inflation and the oil price is more volatile than ever. So, how can online traders navigate the conflict? Fred Razak, Chief Trading Strategist at CMTrading, shares some insight.

Is gold still a safe haven for investors?

Razak says, “Gold has always been considered a safe bet in times of crisis. This essentially means that when the rest of the market is susceptible to the economics of what is going on, even in a stressful environment these types of investments flourish. As the forex trading and Stock trading markets are hit by the ongoing conflict, traders have, once again, turned to gold.

“Gold reached $2070 in March, and though (at the time of writing), it has dropped to under $2000 again, if we could get to $2070, we could conceivably break above $2500. When you break out to new highs, there's no limit on how much further you can go.

“In environments that are unstable in which spikes are common, usually it's an inverse relationship, but it can do the same thing and be pulled down by the rest of the market. So, just be aware that in these types of climates, which are always news-driven, you need to take quick profits where you can, because they could turn around very, very quickly.”

Why are commodities like gold, wheat and oil spiking?

Says Razak, “War disrupts everything – the supply of oil, food production and all markets, especially if it's one major state – like Russia – that is involved. Even though Ukraine is a smaller country and not as big a player in the world economically, Russia is the largest producer of oil in the world. They are also a major player in the Economic Forum. When one of the largest distributors or producers of oil in the world has a conflict with another country and sanctions are imposed, the stability of the entire world is affected. 

“Oil is being heavily affected and we’re seeing some pressure in selling out of the markets. Gold is fluctuating because it's still a safe haven investment. Anytime you have some sort of conflict, the distribution of commodities like wheat is going to be imbalanced; either through production or supply. In terms of business, you're focusing on the potential spillover of how far this conflict could spiral down.

“So, commodities are the first market the conflict will affect due to simple supply and demand. If there's war, there's more demand for oil, yet production is affected. Food becomes scarce because wheat production is affected, and Russia probably has huge stockpiles of supplies. I would imagine that Putin has already considered this and was a few moves ahead of NATO, the EU and the USA, knowing full well that he was going to be put under sanctions. 

What are some of the prevalent market trends during the conflict?

Razak says, “We are in for a rollercoaster ride with some tremendous gaps between the up and down cycles. The markets don't need to be agitated by a conflict; it just exasperates things. Since the markets are already in a recessionary climate, we don't need much fuel to spark significant sell-offs. We’re also seeing that gold is coming back into play and that it’s still a haven trend.”

How can traders weather the storm?

Razak concludes, “Be vigilant and just know that a lot of fluctuations in the markets are going to be news-driven. But there are going to be a lot of trading opportunities for those who keep their ears to the ground.

“In times like these, trading responsibly is the best you can do. There are going to be a lot of moves in the markets and a lot of opportunities, but you want to be able to carefully identify what kind of potential you can grab out of the market and cut your losses short.

“Stay focused on the volatility; focus on quick entry and exit strategies without drawing any conclusions as to which particular direction the market is going. The market doesn't have any rhyme or reason at this juncture. Right now, it's news-driven. Russia could end its occupation of Ukraine tomorrow or continue its invasion indefinitely. Markets will continue to react as long as this conflict persists. Traders are going to have to react accordingly and spot the opportunities as they happen.”

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CMTrading is the brand name of Global Capital Markets Trading Ltd (A Seychelles company, company no. 104785)