Trading forex, stocks, and crypto during a downturn

By Paul Reid

03 February 2023

As 2023 gets into full swing, stock market volatility is heating up and showing a teaser of what’s coming—despite recession fears continuing to dominate headlines all over mainstream media. For traders, the questions are simple.

  • Which asset class will yield the most favorable results? 

  • Will the stock market be too volatile? 

  • And will crypto trading make a comeback?

Many traders are excited to leverage their positions and maximize their returns with 2023 volatility, but it’s going to be a double-edged sword. While some traders will hit jackpot, many will see their stock trading accounts wiped out.

One alternative asset class during uncertain times is forex. The forex market (foreign exchange market) is one of the most liquid markets in the world. Such high liquidity limits the speed and depth of a market crash, but it still offers opportunities to profit from both rising and falling economies.

Another popular marketplace for trading is the stock market. While the stock market can be more volatile than the forex market during a recession, it can offer much higher returns, but that attraction comes with higher risk. And like forex trading, stock traders can also use leverage to open larger positions, although leverage in trading stocks is available at much lower levels—for obvious reasons.

There are also many opportunities for crypto trading over the 2023 horizon. These assets have become increasingly popular in recent years, as their prices have fluctuated widely. For some traders, these volatility swings provide an opportunity to make profits (or losses). And, leverage in trading the crypto market can yield some shocking results.

Trading Forex

When it comes to forex trading, one of the most important concepts is leverage. Leverage in forex allows traders to control a larger position than they would with their own capital alone. This can help them achieve greater profits, but it also comes with greater risk. Good forex brokers will offer their clients a variety of different leverage ratios to choose from so that they can find the right level of risk for their individual trading style.

As for which are the best currency pairs to trade, consider avoiding minor and exotics. Not to say the major currency pairs will be less volatile.USD is present in every one of the most traded currency pairs in the world, but it will be a perilous currency, and it’s not the only time bomb in the forex market right now.

GBP is already weak and will take a serious hit when the downturn begins. Anyone considering a “buy low” long order with margin trading might be in for a terrible year if GBP goes the way most analysts believe it will. Right now, GBP is perhaps the opposite of a haven currency.

Speaking of haven currencies, CHF against GBP will be one of the currency pairs to watch out for, but there won’t be many other trading opportunities from the Swiss.

JPY might be the only safe-haven currency in 2023, but “safe” offers no value for traders, and world media is bashing the yen right now with unqualified concerns about the Japanese economy, which will affect forex market sentiment significantly if it continues.

So, unsurprisingly, a short order will be the obvious choice for weakening currencies, but choose your entry point carefully, most definitely set take profit and stop loss. High leverage in forex will cause mayhem for low equity accounts as nations fight to keep their economies from crashing, so account for volatility daily. Sticking to major currencies will help avoid a stop out, but no currency is stable during an economic downturn, so trade cautiously.

Trading stocks

There are many dynamics at play in the stock market. It is important to understand these stock market dynamics in order to be a successful trader. The first thing to understand is that stock trading is split into two types of stocks: common stocks and preferred stocks.

Common stocks are the most traded type of stock and make up the vast majority of the market. They are considered a security that represents ownership in a company or corporation. Preferred stocks are more comparable to bonds and are commonly used for dividends. When checking stock market news, only common stocks are of interest to stock traders. 

The next thing to understand is how stock trading prices are determined. There are many factors that go into this, but ultimately it comes down to supply and demand.  When there are more buyers than sellers, prices will go up. When there are more sellers than buyers, prices will go down. It is important to watch for these dynamics in order to make profitable trades. 

Another important aspect of stock trading is diversification. This simply means that you should not put all of your eggs in one basket. Instead, spread your investments out across the stock market in order to minimize risk. This is one of the most important tenets of successful trading. 

Finally, it is important to have a good stock trading account. This will allow you to trade quickly and efficiently without having to worry about fees or commissions eating into your profits.

Exness trading accounts have a long list of advantages and favorable conditions that help traders maximize their performance and potential. From price gap execution to stop out protection, having a fair broker in your corner can make a big difference at the end of the year.

Trading cryptocurrencies

While crypto trading has been hugely popular for a few years, three main crypto market crashes left retail traders chasing the trend holding a rather expensive bag. Once bitten, twice shy, 2023 traders are not willing to blindly jump into the crypto market just yet, although there are clear signs that the crypto winter is ending. Bitcoin, the grandpa of cryptocurrencies, has seen its value increase dramatically in the last few weeks, rising $7000+ (USD).

Other coins in the crypto market, such as Ethereum, Solana, and even Ripple, have also seen significant percentage growth. Trading cryptocurrencies can be a risky endeavor at any time of the year, but with a recession looming, most analysts are split. Traders will either pull out of stocks and fiat currencies and turn to crypto or stick to haven gold and other precious metals.

If crypto trading is favored over XAU trading, we could see a return to 2022 prices by the end of Q2, putting huge smiles on the faces of those die-hard traders still holding Bitcoin and altcoins from the last bullish run. Either way, it’s going to be a rocky road.

It’s now commonly accepted that “buy & hold” is not one of the more successful crypto trading strategies. Clearly the crypto market today is better suited to day trading strategies, so keep that in mind when planning entry and exit points. Those who are risk-averse or inexperienced with financial markets should probably steer clear of the crypto market in the coming months. But, for those who are willing to take on some risk and are experienced with online trading, crypto trading can be a great opportunity.

To summarize

If you are using high leverage in forex, cryptocurrencies, or stock trading, 2023 is going to offer a lot of risk and reward. Which side of that proposition you end with will be decided by how well you research the assets before setting orders. 

In general, you might choose to restrict leverage in trading to your minimum levels. 

As for the stock market, expect a decrease in consumer spending and corporate profits. This will lead to a decline in stock prices as investors become more cautious and sell off their holdings. Additionally, larger companies may also cut their dividends, further impacting the value of their stocks.

And finally, the crypto market. Several dedicated crypto brokers (exchanges) fell since blockchain technology and crypto trading appeared on traders’ radars. While the majority of crypto trading platforms are considered secure, to trade crypto CFDs offers many additional advantages—shorting being a big one. Those who are Bitcoin trading and prefer “sell” positions have had several profitable situations to take advantage of over the years, but 2023 might not be one of them… at least in the first half.

Sentiment will be the most significant influence on trading prices, but trading sentiment is about reacting fast. If mainstream media is hawkish on Bitcoin and other altcoins, it’s already too late to go long. Your job will be to preempt any hype and then sell when the rally is in full swing. This is a tricky proposition that will need daily technical and fundamental analysis.

This is not investment advice. Past performance is not an indication of future results. Your capital is at risk, please trade responsibly.


Paul Reid
Paul Reid

Paul Reid is a financial journalist dedicated to uncovering hidden fundamental connections that can give traders an advantage. Focusing primarily on the stock market, Paul's instincts for identifying major company shifts is well established from following the financial markets for over a decade.

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