The COVID-19 pandemic hit the world like a tsunami and its effects are just as devastating. The increased volatility in the FX markets is proof of that. Changes are happening right now that will affect not only forex traders and investors but everyone who needs to exchange foreign currency.
How you respond to these changes will define whether you lose your fortune during this worldwide upheaval.
Impact of the COVID-19 Pandemic on FX Markets
The impact of this pandemic is impossible to predict because it’s truly enormous. One thing is for sure, the entire planet will be suffering from aftershocks for a while. Also, a global economic crisis is neigh unavoidable now. Many countries are already suffering from multiple economic problems.
Global supply and demand chains are disrupted. However, the worst thing about this is that there is no clear indicator of when the situation will stabilize and return to normal. This uncertainty adds further complications to al already bad situation.
In light of this, it’s no surprise that many currencies are on the verge of inflation. FX markets are getting extremely volatile because the global financial security net is all but broken. At the moment, the US dollar and Euro remain two of the most stable currencies in the world. However, even they won’t hold out much longer.
FX rates have changed drastically for many currency pairs since February. These changes are getting more unpredictable and extreme because of lockdowns. As businesses close entire countries are suffering a rapid loss of cash flow and liquidity. Also, states are cut off from the help they would usually get through international cooperation. Even international investors are now more concerned with securing their portfolios.
As this situation continues to unfold, FX markets will keep growing more volatile. Therefore, anyone who has an FX portfolio in a single currency should reconsider their position right away. Do not forget that in forex trading volatility could also mean opportunity. FX options are a tool that could help you make the most of this situation.
You May Read: Ways to Hedge Against Inflation
How FX Options Could Help You Today
Even if you aren’t a professional forex trader but only a small business owner or investor who needs to make international payments, you can benefit from this hedging tool. But first, you need to know that currency options are complex but helpful. And in the current conditions, you can’t afford to let your lack of understanding ruin your chance of gaining some security.
That’s the main advantage of using FX options today. This tool allows you to reduce the risks caused by volatility, which can be the thing that decides the future of your business. In some ways, they allow you more freedom than other popular hedging tools. Therefore, you get to cut the risks down further.
In essence, options allow you to purchase a right to buy or sell currency at a fixed price. The important thing is that it’s a right and not an obligation, meaning you might choose not to do this if the market turns not in your favor.
People who would benefit from this hedging tool the most today are entrepreneurs, investors, and owners of small businesses who require to make international money transfers. These transfers are a risk at the best of times. Big corporations have the funds to somehow offset the losses on fast-changing FX rates. However, smaller companies will often not only lose their profit margin because of this. But they can actually lose a significant amount of money.
With FX options, you can reduce those losses, especially if you need to make international payments regularly.
The Role of Currency Brokers in your Success with FX Options
As mentioned before, for all that they are helpful, FX options are also complicated. Therefore, to become a proficient user of this hedging tool you’ll need to study for a very long time. This is achievable, but the majority of people hardly have the time, opportunity, or inclination to master every nuance of forex trading.
That’s where currency brokers come in. Today, there is a wide range of companies that act as currency brokers. They do not only help you with hedging but also transfer money to a variety of destinations. The important distinction between such services and bank wire transfers is that the former is much cheaper.
The industry of FX brokers was blooming due to the emergence of companies like TransferWise and World First. Today it’s only getting bigger because the COVID-19 pandemic increased interest in fintech apps. This means that competition within this industry has also increased.
Offering good hedging tools is one of the main competitive advantages businesses in this industry offer. Therefore, you should be able to find a broker that will meet your exact needs in FX options.
But remember to be careful and do at least basic research. You need to understand what you are dealing with before you invest any of your hard-earned money into this.