As a result of skyrocketing global inflation, the general standard of living has been severely affected in many countries worldwide, and the hardest months are yet to come.
If interest rates remain at current levels, the cost of living and the expenses of companies will increase drastically. If major central banks decide to raise interest rates drastically, money inflows to the economy may dry up while state debt levels will shoot up. Either way, the probability of a global depression is increasing.
In Europe, this can be further exacerbated by soaring energy prices. The war in Ukraine and the depreciation of the euro have made energy imports so expensive that energy prices now endanger the general standard of living. The Russia-Ukraine war may continue for more than a year from now, further strengthening inflationary pressures. In light of current inflation rates of nearly 10%, I do not think that the 2% inflation target in the EU and the US is within reach on a 1-year horizon. We will have to wait a long time for price stability.
Against this backdrop, elevated volatility will characterize energy and stock prices as well as currency exchange rates in the next months. High volatility can provide opportunities for investors and growing interest in investing may result in a higher number of new account openings at brokers.
On the other hand, volatile markets come with a set of risks, especially for traders who buy and sell leveraged products because the improper use of leverage can lead to margin calls.
Suggestions for retail traders in the current economic climate:
- Choosing a reliable broker is of paramount importance; traders should pay particular attention to spotting and avoiding scam brokers.
- Trading liquid assets is recommended in order to avoid gap risk.
- Using risk management tools and going for an adequate leverage level are important.
- Some assets can be extremely volatile, traders should focus on proper position sizing.
- Special attention should be paid to slippage and execution risks.
- Traders should always check trading costs.