With the global economy encountering inflation at an all time record, forex traders are monitoring their assets intently to see how their currencies purchasing power and exchange rate are being influenced by the devaluation of both the sterling pound and U.S. dollar. There are many efforts to curb inflation, but is proving difficult. With the likes of Russia invading, global fuel shortages as well as economic disruption from the pandemic and BREXIT it is a hard time to invest in such markets. Forex scams are rife when the economy is hard, so these tips are going to help with skipping the temptation of opting for something that sounds too good to be true. In this article, we wll go through some helpful tips to get you through the hardship and challenges and help you keep your capital when trading in an inflationary environment.
Develop your market opportunities
As inflation reduces the purchasing power of currencies such as GBP and USD, it creates a range of opportunities to preserve your capital and can also generate some large profits by moving your assets to currencies that are developing markets.
Forex traders, especially less experienced traders will be unaware of such currencies and can struggle to find the promising investment opportunities by themselves. Often, the most lucrative trading opportunitieswith developing economies and currencies include those that offer high yields, regular price volatility and suppressed pricing.
Monitor economic controls aimed at curbing inflation
When you are evaluating the opportunities for trading in an inflation environment there is a difference between unrestrained inflation (rapid price increases) and inflation that is managed through the control of the economy. When the government try to slow down inflation, this is managed inflation. This does cause disruption in the short term, but it doesnt change the long-term forecast of the currency drastically.
We know what your thinking, as a forex trader, you don’t really care about the long term prognosis, but in truth, although there is volatility in the short term, it will steady out in time and trading will carry on as normal.
Buy currencies when the purchasing power is low
Inflation often plays a leading role in reducing the purchasing power of currency. This is where you can benefit as there are opportunities to buy low and then cash in once the economy of that currency begins to slow down. If you move your money out of GBP into a developing market before the inflation pulls down the exchange rate value, you could then at a later date look at an opportunity to return your money into the GBP market before the increase that is expected takes place. If you can identify triggers that will help the GBP to increase, go for it and transfer your money back to GBP.
Inflation can easily disrupt financial markets and can hinder the progress of your forex trading plans, but when you have a good strategy in place for such events, it will help you to stay safe and not fall for any forex trading scams that are always too good to be true.