Forex Trading and the Recovery

Many countries began recovering from the great global crisis. It began with a stock market rally and now it’s seen in growth figures. Forex trading has grown in recent months. Will the recovery hurt this growth? Or will r  keep its strong position?

Forex trading has grown nicely since the breakout of the global financial crisis. This is seen in the growing volume of trading, and in the growing number of forex traders. When the interest rate is practically nothing, house prices collapse and the stock markets fall face down to the mud, forex trading looks like a good investment.

Forex trading can’t go bearish, since there is a currency that always goes up. So, when all other possible investments are scary, including leaving your money in a bank, forex trading is attractive.

Recovery

I’ve written about the surge in forex trading in March – Forex Getting the Deserved Attention. Later, near the end of April, I noticed the impressing six-week rally in stock markets, but still saw that forex trading is surging.

Well, the stock market rally continued in the next months, and was recently backed by GDP figures for the second quarter of 2009. Germany and France both posted surprising growth instead of contraction. Japan printed growth.

The American economy still contracted in the second quarter of 2009, but the job market showed some surprising bounce – American unemployment rate fell in July. Australia was never in recession, and the Glenn Stevens already began hinting about a possible rate hike, despite having the highest interest rate in the West – 3%.

Recovery bad for forex trading?

In Forex Magnates, Michael Greenberg writes that the recent recovery means tough times for forex. He claims that forex trading needs high volatility:

Forex traders prefer turbulent economic times because Forex markets are very volatile as a result and respond more strongly to any economic news. Volatility leads to larger profits for some and larger losses for the others. Some trading systems can only operate in volatile markets. When markets are calm traders tend to place less trades as there are less triggers to trade, less ‘action’ and less ‘blood’ in the air in general. On the other hand this in part is offset by returning fundamental traders who tend to take a step back when markets are irrational.

I think that forex trading won’t suffer from tough times. First, the recovery is very fragile. The huge American debt is still a burden on the economy. A small hike in oil prices could halt this fragile growth in the US, and hurt the whole world.

Second, the growth in the number of traders won’t  disappear  soon. More people have been exposed to the world of forex, and they won’t leave so soon. Maybe their volume will shrink, but they will still be with us.

Lastly, I believe that the recovery can even help forex trading – in the same way it helps the stock markets. When there’s more money available for investments – it means more money for forex trading.

It’s still to be seen  whether this recovery is real and strong and whether the volume of forex trading will shake from this economic change.

I’ll continue following this fascinating market.