Why are Stocks Crashing and How Can Forex Traders Cash In?
Rowan Crosby • 2 min read
This week we’ve seen some big moves in US equity markets. We’ve had two days of huge falls in the vicinity of 4%. To put that in context over the last year the market has barely fallen 3% in total. The big moves have shaken up investors who have been lulled into a sense of security.
But now we’re seeing fear come back into the markets. Many are questioning whether or not we are facing another financial crisis.
Why are Stocks Crashing?
Since 2009, we’ve had a huge bull market. Gains have been strong and for the most part, volatility has been low. We have had a few slight pullbacks in that time, most notably in 2011. However, in the last two years, we’ve barely had a slowdown.
The only things that have caused any concern recently have been Brexit and the US Presidential elections. And they ultimately ended in market rallies.
So with that, investor grew complacent. And started to short volatility. They shorted volatility through products like the VIX, VXX or XIV. Overall, retail investors and some institutions were net short volatility in a big way.
And it got to the point that when markets started to decline, those who were short volatility need to cover their positions. Either by buying the VIX, or selling stocks. That lead to the outsized moved in the VIX and a market crash. And there might be more to come as investors continued to unwind.
How Can Forex Traders Profit?
As fear grows we are seeing the safe-haven currencies come back into focus. Both the USD/JPY and USD/CHF had been active. Shorting these pairs when stocks are falling will help you stick with the trend.
Gold hasn’t really performed like we might expect at the moment. And similarly, the USD is strong. So these aren’t perfect trades. But we are really just looking at ways to cash in on the trend and take advantage of fear in the markets.
The best way to do that is to follow the forex signals and ride on the back of our team of analysts.