How will 2022 be different for traders and investors?
In late 2021, many financial publications were running stories that posed questions like, "Will next year be a different one for investors?"
Since the recent international conflicts, like the war between Russia and Ukraine, the question has become how will this year be different from 2021? Besides armed conflict, individuals and institutions face global inflation, a continuing supply chain crisis, and remnants of the COVID pandemic in places like China.
Three facts that make a difference
It's critical for anyone who plans to stay in the markets to understand three central facts about the current state of the international economic order. After that, spend time reviewing two safer financial instruments in times of crisis: CFDs (contracts for difference) and indexes. Those who have accounts with AvaTrade can avoid volatile single company stocks by trading entire indices like the Dow, the DAX, and others.
Finally, round out your research by examining how the major indices have reacted so far to the war situation and other developments. Knowledge is power, particularly for investors and traders who aim to earn profits during volatile times. Here's more about the three upcoming changes, index and CFD trading, and the latest changes in the S&P 500, the FTSE, and the DAX indices.
Three changes in international securities markets
There are three important changes to watch for as 2022 unfolds. If you anticipate them and keep them on your trading radar, you can avoid surprise moves in price and supply for stocks, commodities, and other asset classes.
- More Volatility: Expect more volatility due to the ongoing conflict between Ukraine and Russia. Because of Russia's central role in so many areas of finance and trade, the nation's current turmoil is already having a chain reaction effect on multiple securities and capital markets.
- Stocks Down, Commodities Up: The biggest price rises to date have been in core commodities like oil, nickel, and natural gas. Russia is a major exporter of all three. It's highly likely that there will also be continued downward pressure on stock prices, in tandem with commodities going up. As for individual stocks, their fates depend on whether their resources are cut off by the war.
- Indices, Gold, and Crypto Becoming More Attractive: Third, many investors are already starting to flee from traditional stocks and look closer at safe haven investments like gold, cryptocurrency, and stock indices. There are unique advantages for equity enthusiasts in turning to the major indices.
Safe instruments in troubled times
During and after natural disasters, military conflicts, international trade wars, pandemics, and other major events that wreak havoc on the world economy, many people seek financial safety in index and CFD trading. Why? Each one has its own unique benefits.
Because an index of stocks is made up of dozens, sometimes hundreds of individual companies, there's a built-in diversification that is impossible to get with single stocks or large personal portfolios. That means price changes, even in a volatile environment, are much smoother. Indices use weighted averages to balance the apportionment of each component. Investors often discover that it's easier to predict price movements when dealing with an index, as opposed to individual shares of a single company.
Contracts for difference are one way to earn a profit on price moves without owning the underlying asset. People use CFDs to predict the direction of future prices and don't profit directly from owning the shares. They're an easy way to short an index or just one stock if you believe the price is about to decline. For CFD enthusiasts, volatility can be a good thing because it's possible to make profits from short-term moves.
The state of S&P, FTSE, and DAX
When it became apparent that Russia would invade Ukraine, the S&P 500 dropped from $4,475 to $4,225 between Feb. 15 and Feb. 23. After a couple of blips upward and subsequent drops, the S&P entered mid-March at $4,277. The onset of war had the same effect on both the DAX and the FTSE, Germany's and UK's major indices.
During the same time period, Feb. 15 to Feb. 23, the DAX fell sharply from 15,412 to 14,631. After bottoming out at 12,834 in early March, it has since recovered a bit, to 13,551 near mid-March. The FTSE did not drop as much as the other two during the same period, only slumping from 7,608 to 7,498, but it has since fallen all the way down to 7,124. As long as the Ukraine-Russia conflict continues, all global securities markets will respond accordingly.
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