The 2020 outbreak of the novel coronavirus (COVID-19) has driven unprecedented participation in the global financial markets. Heavy daily traded volumes and extreme pricing volatility have become new norms. Although the risk profile is greatly enhanced, active traders are privy to rare opportunities.
No matter which market you are looking at, it is highly likely that extreme pricing fluctuations have defined early 2020. One way to capitalize on the action is by trading futures contracts. In doing so, you can maximize your capital efficiency and benefit from the COVID-19 panic.
Micro E-Mini and E-Mini Equity Index Futures
Late February and early March of 2020 brought a chaotic period on Wall Street, featuring several history-making events. Multiple coronavirus-driven market crashes rivaled those experienced in 1987 and 2008. For the period of Feb. 27 to March 12, the Dow Jones Industrial Average (DJIA), S&P 500 (SPX), and NASDAQ Composite (NASDAQ) were extremely active:
|Date||DJIA||S&P 500||NASDAQ 100|
|February 27||-1191 (-4.4%)||-137 (-4.42%)||-414 (-4.61%)|
|March 2||+1294 (+5.09%)||+136 (+4.60%)||+384 (+4.49%)|
|March 9||-2014 (-7.7%)||-225 (-7.60%)||-624 (-7.29%)|
|March 10||+1167 (+4.8%)||+135 (+4.94%)||+393 (+4.9%)|
|March 12||-2352 (-9.99%)||-260 (-9.51%)||-750 (-9.43%)|
As you can see from the table above, the impact of the coronavirus on U.S. equities was staggering. Emergency rate cuts from the U.S. Federal Reserve, surprise economic stimulus packages, and constant COVID-19 headlines drove unprecedented participation to the markets. Unfortunately for traditional “buy-and-hold” investors, profits could only be secured from bullish bumps in stock prices, not the sell-offs.
One of the premier benefits of equity index futures is flexibility. Trading the Micro E-mini and E-mini equities indices has several key advantages over stocks or ETFs:
- Implement bullish or bearish strategies
- Apply enhanced leverage courtesy of reduced margins
- Pay low all-in commissions and exchange fees, free of management costs
- Enjoy consistent market depth and efficient market entry/exit
Access to leverage, ability to go long or short, and low cost structure make Micro E-mini and E-mini equity index futures ideal for engaging the U.S. stock markets.
COVID-19 Impact on Commodities
Stocks aren’t the only assets driven directionally by the COVID-19 pandemic. Energies, metals, and ag products have also displayed a keen sensitivity to the spread of the virus.
The impact of the COVID-19 on commodity pricing is multifaceted. During uncertain times, investors often turn to assets such as gold to hedge against unknown risk. This was the case throughout Q1 2020 amid the coronavirus outbreak. From January 1 to March 12, spot gold rallied by 3.8 percent, posting new all-time highs above $1,700.00 in the process.
Conversely, COVID-19 brought serious demand-side questions to the global oil complex. A projected economic slowdown and lagging Chinese consumption caused West Texas Intermediate (WTI) and North Sea Brent (Brent) futures to post multiyear lows. Agricultural commodities faced similar demand-oriented issues. Livestock, grains, and oilseeds all came under immense bearish pressure as COVID-19 hysteria coupled with U.S.-China trade strife ravaged the markets.
Once again, the inherent flexibility of futures provided participants the ability to trade market fundamentals. Whether buying gold futures as a safe haven or selling ag and energies to profit from demand-side uncertainty, futures can help you competently manage the evolving COVID-19 situation.
Using Futures to Trade the Coronavirus Pandemic
On March 11, 2020, the World Health Organization officially labeled the novel coronavirus (COVID-19) a pandemic. As a result, travel bans, stimulus packages, and emergency monetary policy measures were implemented. Subsequently, extreme volatility has become a new staple of the world’s capital markets.
To learn more about how you can use futures to secure market share amid COVID-19 mania, schedule your free consultation with a market pro at Daniels Trading today.