The most exciting part of trading is the thrill of mitigating your risks in favor of your rewards. For those who are just starting, it’s a game of knowing when to buy and knowing when to sell. Or, as most traders would say, "Buy low, sell high"! But, how do you know if the prices of stocks and securities are low or high?
Usually, an investor would have to take an unbiased look at the market, study the price chart of each asset through technical analysis, make sure the price is aligned with the asset’s fundamentals, check if there are any news or rumors that could possibly influence the price, and, finally, use his instinct to make the decision of buying.
Sounds hard? Because it is. Unless… the market is driven unanimously by a global event.
Unfortunately, 2020 brought upon us the coronavirus pandemic which led to a once-in-a-decade economic fallout, especially in Europe. There’s no point in saying how badly this affects our individual lives and how many people lost their jobs in the process.
But, if you have some money aside, you can consider yourself lucky enough to live one of the best times to invest. Forget all the hard work a trader needs to do in order to find a market in its ‘lows’. The entire market is hitting new lows and creating thousands of opportunities.
If you are ready to join what’s going to be part of history in the economy books and do your own investments, the only restriction you have is imposed by your local regulation. Thankfully, if you are European most of the modern platforms are taking care of the legal part for you. A quick search on a list of the best trading apps in Europe will get you started right away!
These kinds of events take place only a few times in a decade, and external sources always provoke it. Each time the market enters in an emotional cycle it follows a consistent pattern, moving from greed to fear and back to greed.
These kinds of events take place only a few times in a decade, and external sources always provoke it. Each time the market enters in an emotional cycle it follows a consistent pattern, moving from greed to fear and back to greed.
- When the economy is doing fine, prices are up.
- When the economy is in a recession, prices are going down (this is when you buy.)
- When the cycle ends, the economy tends to go back to normal. That’s when the economy booms and prices go up like there's no tomorrow (this is when you sell!)
It has happened before
In the past, the stock market faced similar conditions, and every time there was a ‘crush’ on the prices. Also, every time they went back up. These drops are now seen as natural movements and healthy for the market, known as ‘corrections.’
I won’t bore you with history lessons, but I want to give you perspective. If you’d dig into the older investment books, you’ll find out how terrified the investors were in the 60s when the market was dropping amounts that are considered insignificant today. In another 60 years, they are going to read about this crush and think the same.
Anyway, some events are more significant than others. Let’s have a quick look at the ‘worst’ ones and how did they affect the economic environment in Europe:
- Tulipmania Bubble – It started in the Netherlands where, after 4 years (1633–37) of trading contracts for bulbs of tulips at extraordinarily high prices, the market collapsed. It could have been the end of the trading and investment space, but it wasn’t.
- Wall Street Crash of 1929 – This one started in the US when a bubble was created by speculators borrowing money to buy shares. It had a global effect and it led to what is now known as the Great Depression (4 years of economic crush)
- 1973–74 stock market crash – A miners' strike caused a sudden rise in oil prices which hit the London Stock Exchange's FT 30 pretty hard. The market lost 73% during the 23 months. Nobody had hope anymore. Anyway, the London Stock Exchange is one of the world leaders today.
- The financial crisis of 2007–08 – It first started in the US where a package of securities with huge risks was exposed, then a global crisis was triggered when some of the European banks declared bankruptcy. The event had disastrous effects on the world economy. A decade later, the market is hitting world record highs.
- European sovereign debt crisis – This one happens just 10 years ago. After the activation of the EU–IMF bailout, Greece's sovereign credit rating downgraded to such a low level that it triggered a decline of stock markets worldwide and of the Euro's value. Europe and its currency got back up and they are more powerful today than they ever were.
2020 stock market crash
The Covid-19 outbreak put a pause in the world trade which caused supply disruptions. The restrictions had to be imposed rapidly, and the US stock market was the first to respond with a sudden drop. Shortly after, the stock markets around the world followed and the prices fell simultaneously. The Dow fell more than 23% and experienced its worst first quarter in history this year, and this quarter has been the S&P 500's worst since 2008, dropping 20%.
How far low can it go? Nobody can tell with certainty. It’s true that the Dow Jones dropped more than 10% in a single week. But it’s also true that the market was a record high when the selloff happened. A 10% drop in a ‘stretched’ market is less impactful than a 10% drop in a stable-healthy market.
Plus, recently, when the things looked like they were going back to normal a ‘dead cat bounce’ was seen. In finance, a dead cat bounce is known as a false recovery in the price of a declining stock, when the price changes course and goes up for a short period of time, just to fall furthermore. As a long-term investor, you shouldn’t care so much about it.
But it reveals one important thing: investors are ready to buy back and any rumor or positive sign can trigger them.
Last month you were reading about a 3,000 points drop for the Dow Jones. Today the stock market headlines are not even making the first page. The movement is less than 6 points in a day. Do you want to be part of those ‘terrified investors’ they are going to read about in the future? 50 years ago the investors considered a major collapse when a 200 points drop was happening.
As Warren Buffett said: “The market started the century at 66. It ended it at 11,400. How did people lose money in such a period?” That’s exactly the perspective that you need to have as an investor. When you’ll understand that in the long-term the market always goes up dramatically, then you’ll see these crushes as opportunities, not catastrophes.
It’s time to buy. Now what?
We already established that you don’t have to spend more time determining whether it's time to buy or not. Where can you invest?
If you don't already have a trading account, whether you want to start trading stocks actively or just want to invest in the long-term the starting point is the same. I prepared for you a handpicked list of the best (in my perspective) trading apps available in the European region. Here they are:
- Plus500 – If you are looking for a serious broker, Plus500 is a global CFD (contract for differences) and FX (forex) broker, listed on the London Stock Exchange, and regulated by several top-tier financial authorities. If you are looking for a considerable safe place to make your first investment, this one must be for you. However, if you are looking to daytrade, be aware that Plus500 doesn’t allow the execution of more than one trade in a 2 minutes time.
- CMC Markets – Global CFD, FX broker, listed on the London Stock Exchange, and founded way back in 1989. In all these years they accumulated a lot of trust in the space. Great for long-term investment if you are planning to invest only in CFDs and forex products as their product portfolio is limited.
- eToro – A startup, established in 2007, regulated by the Financial Conduct Authority (FCA) and other entities. eToro is no listed on any exchange but this didn’t stop it to serve its clients all these years and accumulate the trust it needed. It has an attractive offer composed of commission-free stock and ETF trading for European clients, anyway, when it comes to forex the fees are getting pretty high.
- AvaTrade – It becomes popular after becoming the official sponsor of the Manchester City football team. Anyway, the English sports team choose them for a reason: global CFD, FX broker, regulated by several financial authorities, such as the Central Bank of Ireland, AvaTrade trading tools are modern and trustworthy. But their product portfolio is rather limited and the popular pairs, like the EURUSD, come with high trading fees.
- IG Markets – One of the top CFD brokers in the world. Regulated by top-tier authorities, such as the Financial Conduct Authority (FCA), and listed on the London Stock Exchange. Add to that a modern set of trading tools and you know why it’s one of the top apps right now. It’s a pity that their product portfolio is limited to only CFD and options trading. Plus, the trading fees for stock CFDs are above the average.
All these apps are having the option of making a demo account where you can practice without investing a penny. You are placing trades using virtual (fake) money, getting familiar with the various order types available, and feel the thrill when your account is starting to generate money.
Anyway, this money is fake as well. So, don’t stall too much playing around. When you are confident enough, make your first deposit and join the real market for possible profits – real profits! Success!
The author is not associated with any of the projects mentioned.