In every major world economy, the fourth quarter of 2021 is beset by inflation. While rates aren’t high enough to cause panic among government officials yet, it’s clear that what once looked like temporary inflationary pressures are likely to stick around for at least another year. One question for consumers and traders is whether European, Asian, U.S., and other central banks will officially recognize the new trend in upward moving consumer prices. Even more important for everyone, consumers included, is what governments intend to do to stem a potentially rising cost of living for millions of hard-working individuals and families.
As 2021 comes to a close, there’s a high probability that the global logistics situation, rapidly rising oil prices, and COVID-19 effects will continue to wreak havoc on consumer spending habits, unemployment numbers, and corporate growth. But, what about traders and investors? In a number of ways, a modest dose of inflation can spell opportunity for those who are ready for it and know how to structure their trades to take advantage of predictable economic changes, even negative ones. Here are ways that individual trading enthusiasts can benefit from inflation-related changes in the general price level.
Traders Can Leverage the Power of Predictability
Say what you want about the downsides of inflation, unemployment, bad housing numbers, corporate losses, and other bad financial news. The fact remains that, for traders of all kinds, predictable situations are a good thing. Spend a half-hour reading current economic news and you’ll quickly discover that virtually everyone is expecting a rise in prices of consumer, wholesale, and producer goods across the board, at least for the next six months.
While that might be detrimental to personal budgets, it’s something traders can use to their advantage. First, keep in mind that predictability is your friend. Then, look at which industries might be hardest hit by rising consumer prices. Finally, make a list of companies and goods that tend to perform well in inflationary times. These brief notes you make for yourself will come in handy when choosing which shares to purchase for a portfolio, or which corporations, commodities, and other assets with which to use CFDs (contracts for difference) as a trading tool.
CFDs Make Short-Term Trading Easy
CFDs can be the ideal way to aim for profits on short-term changes in stock, commodity, and market index values. The beauty of contracts for difference is that traders can make positive or negative predictions about a given asset without having to own the underlying stock, precious metal, index shares, or anything else. CFDs let you make a simple prediction about the direction of an asset’s price, choose the amount of capital you want to put at risk, and then wait for whatever time period you believe is most favorable for the changes to take place.
Inflation beleaguered companies make attractive targets for CFD traders. For example, if you think, based on your research, that the shares of ABC Corporation are set to fall, you could use a CFD to earn a profit on a correct prediction. That’s just one way that investors and traders use inflationary trends to their advantage.
Rising Prices Boost Some Corporate Stocks
For some companies, particularly those in the consumer staples sector, rising prices and a generally deteriorating economic situation can be good news. Account holders who work with an MT4 broker often look to segments like consumer goods, technology stocks, and precious metals as those that tend to rise and perform well in inflation plagued times. Using a broker that offers the MT4 forex platform means gaining access to multiple benefits, including up to the minute liquidity and pricing data, the chance to use automated trading techniques, a large menu of fundamental as well as technical tools, flexibility in the kinds of orders you can place, high levels of account security, and more.
Inflationary Pressure Makes It Simpler to Pick Winners and Losers
History can be a wonderful teacher, particularly when you want to see which companies, commodities, and indices have done well in an environment of rising price levels. For instance, if you want to invest in gold bullion, or use a CFD to take a position on the price of gold, examine how the yellow metal has performed in past inflationary periods. You might discover that during the past 10 inflation cycles, gold and other precious metals have often outperformed most other asset classes, including equities. So, as a hypothetical example, a CFD trader might consider taking a long position on gold when general consumer prices are expected to go up. Likewise, that same person might take a short, or sell position on gold when consumer prices are falling, or in a deflationary phase.