Global recession 2020
React to volatility during a recession with the world’s No.1 CFD provider.1
Start trading today. Call +971 (0) 4 5592108 or email sales.ae@ig.com. Our sales team is available from 8:00am to 6:00pm (Dubai time), Monday to Friday.
Contact us: +971 (0) 4 5592108
Start trading today. Call +971 (0) 4 5592108 or email sales.ae@ig.com. Our sales team is available from 8:00am to 6:00pm (Dubai time), Monday to Friday.
Contact us: +971 (0) 4 5592108
What is a recession?
A recession is a period of reduced economic and industrial activity in which an economy’s gross domestic product (GDP) contracts for two consecutive quarters. Recessions will often cause markets to become more volatile, representing opportunity for traders and investors who are aware of the risks.
A global recession is when multiple countries around the world experience two consecutive months of economic contraction – paired with other factors.2
How is the risk of recession affecting markets in 2020?
Market commentary by Shaun Murison.
How has the Dow Jones Industrial Average performed during different economic downturns?
The sharp ‘V’ shaped price action on major indices suggests that world economies could recover relatively quickly from the pandemic-induced recessionary environment. The stock market is pricing in future expectations in the underlying economy – with gains suggesting that the outlook is improving, and declines suggesting a deteriorating outlook.
The Dow Jones Industrial Average (Dow) represents the 30 largest publicly listed stocks in the US. Since the US is the world's biggest economy, people often turn to the Dow as a leading indicator of economic health. The below graphic shows how the Dow Jones reacted to the first month of each crash for 1929, 1987, 2008 and 2020.
While we can draw parallels from the 2008 financial crisis to what is happening in 2020, the catalysts for these two events are very different. The 2008 recession was caused by a banking and mortgage crisis, and the events of 2020 have been caused by a pandemic.
As a result tourism, hospitality, eventing, retail and the airline industry have been some of the most negatively affected industries in 2020.
While economic activity has been disrupted, central banks from around the world are moving aggressively to accommodate business and financial markets as catalysts to reignite inflation and growth. The expectation is that rates will remain lower for longer as record amounts of stimulus have been pumped into the system.
Central banks also remain ready to offer further financial aid when necessary. If the 2008 financial crisis has taught us anything, fighting the flow of liquidity has been a losing trade in markets. Only a resurgence of the pandemic (second wave), and the disruption to business and supply chains that this might cause, would be able to temporarily inhibit the support from central bank activity at present.
Why trade a recession with us?
Go short or long to capitalise on markets falling or rising in value
Access our exclusive extended hours on over 70 US stocks
Seize opportunity instantly with alerts by email or push notification
Get full exposure with a small deposit when you trade with leverage3
Safeguard your capital with our risk management tools
Deal at home or on the go with our award-winning platform and mobile app4
How to trade a recession
Market commentary by Shaun Murison.
- Go long or short on speculative stocks
- Hedging risk during a recession
- Speculate on thousands of other markets
Speculative stocks carry a higher degree of risk for traders, particularly in a market recession. These stocks are often noted as outperformers in a bull market, but underperformers in a bear market. Speculative stocks might find less proof of tangible earnings but rather, rely more on the expectation of future earnings growth.
You can go long on speculative stocks by opening a position to ‘buy’ with derivatives like CFDs.
You can go short on speculative stocks by opening a position to ‘sell’ with derivatives like CFDs.
Look out for the following risk factors which can be amplified when trading speculative stocks:
- High price to book (P/B) and price to earnings (P/E) ratios
- High levels of debt relative to equity
- Weak balance sheets
- Low liquidity
Prices above are subject to our website terms and conditions. Prices are indicative only. All shares prices are delayed by at least 15 mins.
Traders might consider using a hedging strategy to manage their portfolios in a recessionary environment.
A hedging strategy includes the use of more than one asset in its formation. For example, an investor who has an underlying portfolio of blue chip stocks listed on the London Stock Exchange (LSE) might consider trading the FTSE 100 index to hedge or protect their portfolio.
If the investment portfolio had a total value of £100,000 then the investor could take a short position of equal size on the FTSE 100 index. If the broader market was to fall, the loss in value of these blue chip stocks should be at least partially offset by the gains derived from the short position on the index.
The use of an index to protect or hedge a portfolio will often be a more cost-effective solution to the alternative cost realised if you were to liquidate the entire equity position.
Sector indices can also be used to hedge sector-specific stocks. For example, a banking index could be traded against a portfolio of banking stocks, and a resource index could be used to hedge against a portfolio of mining stocks.
Prices above are subject to our website terms and conditions. Prices are indicative only. All shares prices are delayed by at least 15 mins.
Get low spreads on major and minor currency pairs.
Deal on the price of an entire stock index rising or falling.
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Prices above are subject to our website terms and conditions. Prices are indicative only. All shares prices are delayed by at least 15 mins.
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Demo accounts are only available for CFD trading.
Open an account now
Open an account now
Fast execution on a huge range of markets
Enjoy flexible access to 17,000 global markets, with reliable execution
Deal seamlessly, wherever you are
Trade on the move with our natively designed, award-winning trading app*
Feel secure with a trusted provider
With more than 45 years of experience, we’re proud to offer a truly market-leading service
*Best Finance App, Best Multi-Platform Provider and Best Platform for the Active Trader as awarded at the ADVFN International Financial Awards 2024.
How we help you trade a recession
Make the most of opportunity with our tools and guide.
Comprehensive economic calendar
Sign up for the latest GDP figures, unemployment releases and macroeconomic announcements with our economic calendar. Plus, get alerts by email or push notification.
Searchable stocks screener
Identify potential trades with our stocks screener. For example, you could search for high dividend stocks, which are generally considered ‘stronger’ companies during a recession.
Hedging and risk management guide
Control your exposure and manage your risk by hedging your positions. Or, diversify your non-leveraged portfolio to protect your investment positions.
Ways to trade a recession
The table below shows the main advantages of CFD trading.
| CFD trading | |
| Direction | Trade on rising or falling prices |
| Traded in | Contracts that track an asset’s price movements one-for-one |
| Risk management | Cap your losses with guaranteed stops5 |
| Liquidity | Get greater liquidity than the underlying market (where available) |
| Charges | A spread on all markets except shares. We charge a commission on share CFDs, but no spread. Funding adjustments (excluding futures) |
| Platforms | Trade on our web-based platform, mobile app or MT4 |
| Learn more |
Deal on the UK’s best trading platform and mobile app5
- Web-based platform
- Mobile trading app
- Meta Trader 4
Take control of your trading with our clean deal ticket, clear price charts, and in-platform news and analysis.
Seize opportunity wherever you are, and receive alerts and signals on the go through email or push notification.
Automate your trading with MT4, one of the most popular third-party trading platforms for forex and cryptos.
Direct market access (DMA) for the experienced trader
Deal straight into the order books of major equity exchanges with DMA. Available on CFD trading accounts, it provides liquidity from multiple venues and lightning-quick execution.
Latest recession and market news
Plan your trades using the latest news and analysis.
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Sandstone Analysis: Goodman Group's growth driven by rising Data Centre investment
2024-10-08T22:43:10+0100 -
ASX 200 plummets as Wall Street losses and weak AU GDP hint at RBA rate cuts
2024-09-04T05:46:40+0100
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There are a number of reasons why CFD trading is so popular. We explain some of the benefits.
* Best trading app as awarded at the ADVFN International Financial Awards 2020.
1 Based on revenue (published financial statements, 2023).
2 The other factors for a global recession to be in effect include a decline in annual per‑capita real world GDP, paired with a decline in one or more of the following macroeconomic indicators: industrial production, global trade, capital flows, oil consumption, employment rate, per‑capita investment, and per‑capita consumption.
3 Trading with leverage can increase your potential losses as well as profits.
4 Best trading platform as awarded at the ADVFN International Financial Awards and Professional Trader Awards 2019. Best trading app as awarded at the ADVFN International Financial Awards 2020.
5 You’ll incur a premium if a guaranteed stop is triggered.
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