The Lines Between Growth and Recession: Navigating the Fine Margins as a Forex Trader

May 15, 2013

Forex Charts

The recent global recession has taught a number of harsh economic lessons, each of which has had an impact on businesses, home-owners and citizens throughout the world. Above all else, however, it has highlighted the fine margins that separate economic growth and recession in an increasingly connected world.

This is a lesson that has been heeded by financial market and forex traders, who have learned how to thrive and prosper in currency dealings in spite of the prevailing economic climate. Forced to tread the tapering lines between loss and profitability, they have developed numerous innovative strategies to cope in the face of negative economic trends.

The Attitude of Forex Traders Across the World

Forex traders are particularly at the mercy of economic conditions, as they operate within a volatile market that continues to fluctuate on a daily basis. While this instability is often offset by high levels of liquidity and leverage, it creates a market environment where profitability can be hard to sustain. This issue can become extremely prominent during times of recession, especially for individuals whose strategy is based on interpreting economic trends and executing trades accordingly. It therefore stands to reason that a recession should prompt traders to modify their strategies, while also having an impact on individual investors according to their own subjective experience.

Take the contrast between forex traders in America and their British counterparts, for example, who reacted differently according to their own experience of the global recession. At the hub of the financial decline, America hovered on the brink of a crisis that threatened millions of businesses and jobs nationwide. While the federal government battled to reduce its spiraling deficit, however, the financial markets rebounded and maintained exceptional levels of volume, performance and profitability. As America approached the much feared fiscal cliff during the final financial quarter of 2013, it became clear that Wall Street traders had become immune to negative sentiment while learning how to use downward trends as a way of incurring gains.

This contrasts sharply with the attitude of British forex traders, who historically have adopted a more risk averse approach to navigating the financial markets. While the UK has suffered from 5 years of mild economic decline and stagnation since 2008, it has recently avoided a triple-dip recession and has kept its head above the murky waters of financial crisis. As a result, its traders have not been exposed to the same level of negative sentiment that has affected their U.S. counterparts, meaning that they have not been forced to reassess their strategies or develop a more robust mindset when it comes to trading in a declining market.

The Bottom Line for Forex Traders from Around the World

The margins between success and failure are particularly fine, and they mirror the lines that separate economic growth and recession. This is especially true in the volatile and unpredictable forex market, which remains malleable to sudden movements and the machinations of economic news trends as they unfold.

Individual traders are also impacted by their experience during a recession, as this determines their mindset, philosophy and the strategies that they use to obtain profitability. In many ways, the recent market growth in the U.S. is evidence of this, as traders have adapted to ensure that their trades are compatible with a depreciating economic condition.