While there were many events that triggered volatility over the recent years, it’s been a while since the market experienced such dramatic price swings as in 2020 and the beginning of 2021. The reason was, of course, the global COVID-19 pandemic which brought along national lockdowns and, as a consequence, the general downturn of the economy and a complete collapse of certain industries. Other major events like the US presidential election only contributed to the volatility.
Major ups and downs
The past year provided a lot of opportunities that many traders and investors used to the fullest. The companies with largest benefits from the ongoing pandemic were, expectedly, online platforms that allowed people to stay connected and productive (for example Zoom, Facebook, Amazon, eBay, Alphabet Inc. etc.) and those businesses that could move into the online world and adapt to the new reality quickly, like, for instance, Nike, that built an e-commerce strategy and put emphasis on their online sales.
At the same time, many industries like airlines, hotels, and the offline leisure sector in general saw large drops allowing traders to hone their short selling strategies. For instance, Airbus only started its road to recovery in June 2020 and it still has a long way to go before it reaches the pre-pandemic share price level.
Accessibility of online trading
Another side of the COVID-19 influence is the rapid growth in accessibility and popularity of online trading that was seen in the past year and a half. As people were forced to stay at home and had a lot more free time on their hands, many decided to learn more about investing and trading, especially given the strong volatility. The circumstances allowed a lot of traders to gain knowledge and take advantage of the market quickly.
The trading industry historically belonged to the Wall Street bulls and bears — large investment banks, funds and other big players that benefit from trading the most and dictate the rules in markets. However, things slowly shift, and while the main players are still the financial giants, individual investors are gaining more and more power. The pandemic definitely contributed a lot to the popularity and, even, regularity of online trading. Now anyone may consider doing it with, of course, the right mindset and proper training.
A vivid example of this was the short squeeze on Gamestop that resulted in a 1,500% increase of its share price within just two weeks in January 2021. Reddit community r/wallstreetbets united in their efforts to push Gamestop share price as much as possible and succeeded.
What is to come?
Though 2020 might go down as the most volatile year in our recent history, it does not seem that the market is going to settle down in 2021 either. Large price swings related to retail traders pumping the most shorted stocks on Wall Street and the economy still being highly vulnerable to the lasting impact of the pandemic all signal that we are yet to see massive spikes and dramatic lows, as well as significant changes in the online trading industry as a whole.
There are many opportunities to be expected, but traders need to be prepared for the rapid changes that are typical for trading markets. Risk management and wise trading strategies are at the core of any trading transactions, big or small.
