How Global Events Impact CFD Markets

For traders, staying on top of global events isn’t just useful: It’s essential. Whether it’s rising geopolitical tensions or an interest rate hike, the Contract for Difference (CFD) trading market is heavily influenced by external factors. 

Let’s take a closer look at the types of global events that impact CFD markets and unpack some case studies so you can make informed decisions:

Types of Global Events Impacting CFD Markets

CFD markets are sensitive to global events for one particular reason: They allow traders to speculate on short-term price movements instead of actually owning the asset. As a result, news updates can lead to market volatility, determining profits and losses. Here are four types of global events that impact CFD markets:

Economic Events

Key economic indicators, such as employment figures, inflation rates, GDP reports, and interest rate decisions, can dramatically impact CFD prices. For instance, central banks like the Federal Reserve might increase interest rates, strengthening a country’s currency. This will affect forex CFDs, helping traders looking for better returns.

Political and Geopolitical Events

War, territorial disputes, or diplomatic conflicts can cause shifts in any trading market, and CFDs are no different. When political instability increases, the value of fiat money takes a massive blow. This creates a disruption in the overall trading market, and participants are encouraged to invest in safe-haven assets. The CFD market also sees short-term and long-term price fluctuations.

Natural Disasters and Pandemics 

Natural disasters, such as earthquakes, hurricanes, or floods, disrupt a country’s entire financial system. Industries are affected as their shares go down. Such disasters can lead to high prices of CFD commodities. They also instil fear and uncertainty in the market participants, forcing them to panic-sell and or make decisions based on peer pressure.

Corporate News

The impact of corporate news on the CFD market is pretty understandable. When the news of corporate mergers and scandals emerges, traders are left to question all of their moves. A single quarterly report is enough to cause a surge in stock CFD prices, be it positive or negative.

Case Studies

The impact of global events on the trading sector, as well as the CFD market, is no speculation. Here are two real-world examples for better understanding:

COVID-19 Pandemic: When the pandemic hit, financial markets suffered extreme volatility. For instance, Standard & Poor’s 500 (S&P 500) futures decreased by 1.7%, whereas NASDAQ Composite (NASDAQ) futures plunged by 2.3%. As a result, investors turned to gold and other safe-haven assets. CFD traders, too, anticipated market conditions and took long and short positions.

Japan’s 2011 Earthquake: In 2011, Japan suffered a massive earthquake of 9.1 magnitude, which generated a deadly tsunami. In addition to the physical damage (estimated to be $195 million), global markets shook. Oil prices fell and stock markets wobbled.

The Importance of Staying Informed

One thing is clear from the above-mentioned case studies: Staying informed is the key to protecting your capital. Keep a close eye on financial reports, corporate news, and stock prices during natural disasters. Learn to resist panic-selling and follow your long-term strategy.