Monday, April 15, 2024

The Impact of COVID-19 on the Business of Forex Brokers

Before the start of the year 2020, you’re probably one of those who wished for the year to be a good one. As you know, it’s been like a tradition for many of us to think about what happened in our lives over the last 12 months. We’re fond of reflecting on what went well and what didn’t. The new year excites us to set resolutions and goals for every aspect of our lives. 

Unfortunately, the year 2020, which also marks a new decade, was met with turmoil when the COVID-19 pandemic struck the entire world. The coronavirus, which was believed to have started in Wuhan, China, caught everyone off guard. No one can’t deny the fact that it has changed our social landscape. Also, it  has threatened, and will continue to do so, not just lives around the world, but also the global economy. 

The economic impact of the COVID-19 pandemic on many countries is so huge that it’s believed to be worse than the 2008 Financial Crisis. During the first few weeks after the coronavirus was upgraded to a pandemic, many major stocks from all over the world suffered huge declines. However, the stock market is starting to regain its previous losses. 

How about the Forex market? What has been the impact of COVID-19 on the world’s largest and most liquid financial market? Are Forex brokers suffering? 

Forex Trading in 2019 vs Q1 of 2020 

Last year was a difficult year for many Forex trading brokers. Because of low market volatility, Forex traders were in doubt to engage in the buying and selling of currencies online. This, in turn, affected the business of brokers globally. Remember, these companies earn money through spread, which is the difference between the bid price and ask price. This said, last year’s low trading activity was bad news for them; low trading volume meant low revenue.

Yet 2020 is an entirely different story. As COVID-19 worsens, and while other financial markets feel the strain of the pandmeic, the Forex market is thriving. It has brought so many movements to the FX market and, without a doubt, Forex companies are reaping the rewards.

Lots of Forex brokers have reported a remarkable rise in trading volumes so far this year. For example, multi-asset Forex broker Saxo Bank reported that in general, brokerages around the globe experienced a surge in trading volume in the month of February. 

The company also clearly benefited from the trend when they reported a Forex trading volume of $143.9 billion month-on-month, rising 25.1 percent compared to the previous month’s $115.0 billion. In fact, it’s the highest trading volume Saxo has experienced since May 2019. As far as daily trading volume is concerned, it reported an increase of 38.5 percent to $7.2 billion. 

Other brokers such as ATFX, ADSS, and eToro have also noticed that the trading activity of their clients has increased during this period.

Forex Traders Are Trading More

The COVID-19 pandemic has greatly impacted the volatility of the Forex market. The strong volatility has opened up more opportunities for Forex traders to trade, leveraging on price swings. Not only currencies, but indices as well as commodities have become more frequently traded on the trading platforms of Forex brokers.

It’s also important to note that in an effort to mitigate the effect of COVID-19, worldwide lockdowns have been implemented. This has resulted in people being confined to their homes. With uncertainty regarding employment, and income generation, many are seeking opportunities in the financial markets, specifically the Forex market. They’ve flocked the websites of brokers to gain more information about currency trading. 

Final Thoughts

There are still winners in the world’s financial markets in these challenging times and this has been proven by some Forex brokers. While the world is still at a standstill, the Forex market is still thriving. Many people, either looking to grow their wealth, or looking for a new way to earn online income, have looked to Forex trading.

The question now is, is Forex volatility here to stay? Will the trend continue in the long-term? We can’t know for sure. No one can totally predict the future. But what we can do now is to take advantage of the current Forex trading situation, and leverage on bigger trading opportunities. 

Don’t be complacent though. While the current Forex market volatility presents huge potential for profits, it’ll be best to stay alert of the market news and trends. Be reminded that the market can be unforgiving, so you have to make sure that you always look after your trading strategies.

Claire James
Claire James
Claire is an accounts manager at Fire Digital UK, an online publishing and content marketing company based in the North West.

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