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How the "Corona effect" could be traded on the financial markets?

10.03.2020

The Black Monday 1987. One of the most famous days in the stock exchange history around the world. The most expensive US stock index Dow Jones Industrial Average loses over 22% of its value within a day. A terrifying day for US finances, but one of the best for Paul Tudor Jones - a trader, who manages to triple his money during the business day. Through short sales of one of the largest US companies, he was able to make a profit of $ 100 million in a day.

On Monday, March 9, the situation was very similar to a panic stock crash, as the opening of the stock exchange in New York was delayed by 20 minutes and the futures markets repeatedly stopped trading due to fears of further crashes.

During the last few days the financial markets have suffered the worst losses since the last global crisis we have experienced in 2008. The more worrying conclusion is that the COVID-19 virus outbreaks are unlikely to be alleviated, and it will deepen further. This puts markets and market players in a special position that favors the short sales, which aim to gain profits from future depreciation of stocks, indices, and commodities.


What are the most affected companies and sectors?

The worrying conclusion is that not only one, but many sectors have made losses so far, but the most affected are the shares of the companies from the airline industry, restaurants, leisure and hotels stocks, banks and automobiles industries.

Global airliner stocks are down 24% from January 17, and earlier this month, Europe's largest regional carrier, Flybe, went bankrupt jonly two month after the UK government announced a rescue plan. The International Air Transport Association (IATA) has announced that it estimates that the global passenger aviation industry will lose up to $113bn in revenue in a widespread COVID-19 scenario.

According to an analysis by Bloomberg and the Saxo Group, which shows the 30 companies in the S&P 1200 Global index with the highest current 1-year default rate, the worst potential shares, apart from airlines, are the companies of the metal and automotive industries, which should not be that big a surprise as these industries have very high sensitivity to the coronavirus.

Perhaps the most disturbing fact of this analysis is that headwinds are also significant for the European banking system. Over the last 12 years, policymakers have failed to strengthen the banks and the ECB never paid interest on excess reserve like the Fed so European banking system never really healed. In the worst case scenario, a possible recession will lead to something quite unpleasant for the industry, with the potential for a new round of ECB stimulus.

Another major loser on the market are the oil companies, whose profits depend directly on the price of black gold. On March 9, oil recorded its largest one-day decrease in nearly 30 years, sinking by 24%.


How to profit from a stock prices fall?

A Contract for Difference (CFD) is a regulated financial instrument that allows share price trading. In other words, when trading CFDs, market participants try to profit from the change in the stock price without actually holding a real stock.

CFDs allow you to buy and sell. Because only the asset price is traded, one can sell CFDs on Apple shares, for example, without owning those shares.


Ideas for stock trading in BenchMark

The following table includes some companies that are offered for trading in the MetaTrader 5 platform:

  Name   Code in МТ5   Margin   Commission
  Alcoa Corp.   #Alcoa   20%   $0.05/share
  Apple Inc.   #Apple   20%   $0.05/share
  Boeing Company   #Boeing   20%   $0.05/share
  Booking Holdings Inc.   #Booking   20%   $0.05/share
  Commerzbank AG   #Commerzbnk   20%   0.10%
  Deutsche Bank AG   #DeutscBank   20%   0.10%
  Deutsche Lufthansa AG   #Lufthansa   20%   0.10%
  Exxon Mobil Corp.   #ExxonMobil   20%   $0.05/share
  Ford Motor Co.   #Ford   20%   $0.05/share
  JPMorgan Chase & Co.   #JPMorgan   20%   $0.05/share
  Tesla Inc.   #TeslaMotor   20%   $0.05/share
  Volkswagen AG   #Volkswagen   20%   0.10%


A full list of BenchMark's MetaTrader 5 platform shares can be found here.


Trading conditions

BenchMark offers a wide variety of CFDs under excellent trading conditions in the MetaTrader 5 platform:

  Min. trading volume   from 1 share (1 lot)
  Margin requirement   from 10%
  Commissions   $0.05/share
  Min. commissions   No min. commissions
  Automatic execution   YES
  Hedging without margin   YES
  Long/Short positions   YES
  Stop/Limit orders restrictions   NO
  Expert Advisors   YES, without restrictions
  Real-time quotes   YES, completely free