A lot of people stop trading when the economy is not doing well. That’s a real pity! Especially during times of hardship it can be quite lucrative to start trading. In this article we look at how you can become rich by trading when the economy is in a downturn.
What is shorting exactly?
Everybody knows that you can buy stocks, and that you make money when the price of that stock goes up. With modern brokers, you can also short. You start a transaction by selling a stock straight away, resulting in a negative amount of stock.
When the price of that stock goes down, you can buy that stock back at a better price and then sell it for a higher price. The technical details aren’t too important, because the broker does this for you. When you short, all you need to do is press the sell button and you will start to make money when the price goes down.
Making money during bad economic times
With CFDs the direction of the market isn’t really that important: it’s all about the movements a price makes. When you trade CFDs, the difference between the price at the time you purchase a CFD and the price when you sell it determines your profit. To illustrate how exciting this new way of trading really is, let me give an example transaction where we short a stock.
Let’s imagine you bought Facebook stock around the opening and before the big decline in price. With CFD brokers you could’ve done this using leverage, where you could have made a lot of money with only a small amount of your own money. When you trade with 1000 pounds using leverage of 1:100 for 100.000 pounds. You would short with a total of 100,000/38=2600 stocks.
If you had predicted that the price would go down to 24 pounds, your profit would have been 14 x 2600 = 36,400 pounds in a period of merely four months. Given the fact that you only invested 1000 pounds, this is a huge return!
Try trading during a crisis
Trading in poor-quality stock can still be profitable, sometimes even more profitable than trading in high-quality stock. With bad news the downward pressure is a lot stronger, than the upward pressure with good news. A decrease is usually huge and if you follow the news regarding a company well, you can use the information in your favour.
This is the case for all tradable financial instruments. What about the currency pair EUR/USD? Every time negative news around the euro surfaces, the pair goes down quite a bit. By analysing the impact of each news item, you can anticipate the market’s next move.
Trading CFDs is very interesting and you can make money in a lot of different ways. If you find this way of trading interesting, you can start by opening a free demo account. There are a lot of good brokers where you can open an account for free and start right away!