The Effect of COVID-19 on the Stock Market

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4 min

As the quarantine restrictions are gradually lifted across the world and we are hoping to return to our normal lives soon, the world’s economy remains a source of uncertainty and anxiety. The last four months have been a rollercoaster ride and it definitely shows on the trading charts. The pandemic has majorly affected all of the industries, and whereas some businesses suffered the most (tourism, airlines etc.), some benefited due to the high demand caused by the lockdown (delivery services, drugstores). The current impact of the global pandemic of coronavirus manifests itself in rising unemployment rates and it is predicted to cause a severe decline in international commerce with both businesses and individuals affected. While some countries are slowly getting back to normal life, many are still on a full or partial lockdown, with an unclear timeframe and road to improvement.

How did it affect the stock market?

It is needless to say that the world was not prepared to deal with the spreading disease. The effect of COVID-19 on the Stock market was inevitable: as people were suddenly forced to stay in, they quickly changed most of their social habits and needs, transferring some of them online and temporarily abandoning others. The unpredictability of the situation has caused major volatility on the stock market and dramatic drops as traders sold shares in fear of what could happen. February and March were months of decline for most major stocks.

A severe decline in price during the months of February and March

Since then the prices have not been stable and many economists do not exclude the possibility of a second market crash that could happen in the future.

What else happened?

The market was severely affected by the pandemic, but there was another major event that affected the price of oil and, consequently, stocks: the oil price war between Russia and Saudi Arabia. The fall of the OPEC alliance and the consequences caused oil prices to drop by 24-26% in March. The oil industry is an extremely important one as there is a large number of industries that require it to operate (transportation, energy etc.). That is why stock prices largely depend on how the oil price is doing. A decline in the price of oil might cause a drop in the stock prices as well.

How to take advantage of the situation?

The current situation is unstable but chaos on the market might possibly create several opportunities for savvy traders. The current stock market state might be a reason for you to consider stock trading in the event this might be of interest to you. High volatility might potentially bring interesting opportunities for day trading, where you do not need to invest long term and wait for years to see results.

Of course, there are important things to consider, especially in these troubled times. The stock market merely reflects the human relationships of supply and demand, which is why it is important to pay attention to what is happening around us more.

You may choose your own strategy of trading, focusing on certain stocks or particular industries depending on how they are currently doing. Do not forget to check the news daily for important information that could affect the stock you are trading and the market in general. Keeping an eye on the oil price is also something you may consider in order to form better-informed decisions.

There are many impactful events going on right now, but trying to make sense of it and use it as a trading opportunity might be a good learning curve at the least. Just make sure to remember to proceed with caution and do not get carried away, as a highly volatile market can also be quite risky. Come up with a solid plan before you get into trading and use risk management techniques.

Have you been trading in the past couple of months? Did you manage to take advantage of the markets? Let us know in the comments and do not forget that it is definitely not too late to jump on board if you are thinking about it.

general risk warning

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79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

NOTE: This article is not an investment advice. Any references to historical price movements or levels are informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future. Information regarding past performance is not a reliable indicator of future performance. Forecasts are not a reliable indicator of future performance. In accordance with European Securities and Markets Authority's (ESMA) requirements, binary and digital options trading is only available to clients categorized as professional clients.


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