Senin, 14 September 2020

Trading Online Tips: How to Avoid Panic Selling

Trading Online Tips: How to Avoid Panic Selling

The COVID-19 Pandemic has taken its toll on almost all industry sectors, and affects all people from all walks of life living around the world, leaving no exceptions. Certainly the pandemic does not only affect the stock market as companies slow down or shut down completely. 

In the forex market, the US dollar has drastically gone down in value since early July 2020 due to the sheer number of coronavirus cases, social conflicts, and political distrust.

Since the US dollar has been one of the major global currencies, those who had trusted and invested in the USD may find the situation overwhelming and this creates a strong urge to sell. But this is where you need to pause, sit down, and think for a moment.

Are you about to panic sell? 

According to Kahneman and Tversky (1979), a psychological phenomenon called Loss Aversion plays a role in panic selling. Loss aversion isn’t driven by logical thinking, but rather by fear alone. 

A fearful trader will immediately sell the USD upon finding out that it has gone from US$1.12 per Euro to decrease at least 200 pips in value after just 21 days. If you had bought the US dollar earlier last month in July and want to sell when it’s US$1.15 per Euro, you would definitely lose $10 per pip. You don’t want to be losing thousands of dollars just because you’re not thinking clearly.

How to do online trading without fear

You need to think beyond the pandemic in order to stay ahead of it. Take a look at the situation now. If you’ve been investing in the US dollar, you have US dollars right now. It is decreasing in value compared to the other strong currencies: CHF, EUR, NZD, and JPY. What you should do now is to forget about the US dollars that you currently have, and store it for a later time when the economy recovers.

Instead now is time to short sell the US dollar without actually selling your current USD. Short selling is possible with an online forex trading platform such as FBS, and the steps may first seem counterintuitive: 
  1. Borrow the USD from FBS Forex
  2. Trade the USD with the one of the strong currencies
  3. Hold that position until USD hits an all-time low
  4. Trade the currency with USD, and return the USD to the lender. 
In effect, you will have profited in USD (feel free to exchange it if you want), but this is profit nevertheless. Contrast that to a panic selling decision in which you sell off your current USD for other major currencies without any profits at all! As for the USD that you’ve saved up earlier? Use that to trade when the US economy fully recovers. 

FBS is an online forex trading broker and forex trading platform that helps traders of all skill levels by sharing best practices in online trading, such as forex trading strategies and other useful tips. Follow along the news related to the forex market and macro economy with FBS. 

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