10

Shocking Lessons Traders

Learnt in 2016

www.easyMarkets.com
2016 has been a year many would like to forget. With
numerous celebrity deaths, shock political decisions and a
deep division of opinion amongst voters it even had its own
Twitter hashtag.

For traders of course, 2016 presented both opportunities and

pitfalls and was fraught with stories of huge wins and devas-
tating losses. In this eBook we are going recap the 10 shock-
ing lessons traders learnt in 2016...

Are you ready?

#1 THE WORST START TO A YEAR EVER
2016 started as it meant to go on and in fact the opening weeks of 2016
were the worst start to any year ever for US stocks. Trading floors began the
New Year in a state of chaos as weak economic data from China and height-
ened tension in the Middle East wreaked havoc on financial markets world-
wide. The Dow Jones Industrial Average and S&P 500 Index were each down
more than 10% in the first 12 days of trading whilst outside the US Chinese
stocks plunged 16% through the first half of January.

Japan’s Nikkei was down nearly 14% and the pan-European Stoxx 600 also
plunged nearly 12%. The markets were rudely woken from their post Christ-
mas slumber as fears rose over a slowing Chinese economy. (China’s eco-
nomic expansion fell to a 25-year low in 2015, raising warning signs about
global demand.) source

Lesson: Traders need to pay close attention to the news regarding

global growth woes, geopolitical tensions in the Middle East and
the volatility of OIL to stay ahead. Yes even in January!

©Blue Capital Markets Limited 2016 All rights reserved.

#2 NATURAL GAS PRICES HIT A 17-YEAR LOW
Natural gas prices plunged to 17-year lows early on in 2016 amid warmer
than normal winter weather, which depressed demand for heating oils
source. During the summer, warm weather boosted air conditioning demand
and helped to work down excessive gas stocks left over from last winter.
Traders were therefore prepared to focus on the prospect of higher gas
demands in the heart of the heating season between November and March.

However, the persistent warm weather extended into the heart of the heating
season, forcing a reappraisal of likely winter gas consumption. With demand
looking softer and supply picking up, hedge funds began to liquidate some
of their long positions and increase short positions.

Lesson: Nothing is certain in the financial markets, not even oil and
gas! Ultimately this is a commodity and one which is fraught with
risks pertaining to the environment, political unrest and local
demand. Traders need to factor in potential difficulties when plan-
ning their risk management strategy and never be too confident
about any instrument or commodity.

©Blue Capital Markets Limited 2016 All rights reserved.

#3 GOLD PRICES POST BEST
QUARTER IN 30 YEARS
Despite its recent volatility, gold prices entered into
a bull market this year. Our favourite yellow metal
spiked 16% in the first quarter, its strongest move Fun Fact
since 1986 and has since maintained those gains.
Did you know that in
Gold prices reached two-year highs during the
the European Union
summer on safe haven demand. Source. Mean-
while, gains in silver have been even more dramatic, (EU) the trading of
as the grey metal benefited from industrial shortag- recognized gold
es as well as haven demand. coins and bullion
products are free
of VAT.

Lesson: Whilst nothing is certain, gold might typically be viewed as

a safe haven for traders escaping other volatile or uncertain mar-
kets. Indeed, it has proved to be resilient in recent years and is
therefore taken seriously by investors and financial market traders.
At easyMarkets traders can enjoy spreads from 0.0004 on metals.

©Blue Capital Markets Limited 2016 All rights reserved.

#4 WEST TEXAS INTERMEDIATE HITS 12-YEAR
LOW
The oil-price collapse finally found its bottom in February, when West Texas
Intermediate (WTI) futures plunged toward $26 a barrel. This was a massive
shock for market traders who wondered “how low can it go?” That was the
lowest level in 12 years and made headline news on all the major financial
publications. A global supply glut of crude that was exacerbated by a renewed
commitment from OPEC to pump-at-will, eventually led to a bottom for crude
prices.

They have since recovered, but remain at a fraction of where they were in
mid-2014. Oversupply concerns, geopolitical tensions and weak demand con-
tinue to weigh on the crude market.

Lesson: Traders often fail to capitalize on the possible opportuni-

ties provided by the oil market. Start by looking at the energy
sector, its major players and the specific supply and demand fac-
tors that affect the price of oil. Imbalances in supply and demand
and political uncertainty might cause oil prices to drop and rise
accordingly. Serious traders study their chosen market and pay
close attention to news and announcements surrounding their
commodity or instrument.

©Blue Capital Markets Limited 2016 All rights reserved.

#5 THE BREXIT STORM
What could possibly be more shocking than the
Brexit? With an unexpected 51.9% of the UK voting
to leave the European Union, the country was
instantly divided into passionate Brexiteers and
Remainers. Whilst the leave camp vehemently
argued that Britain would save big bucks by being
out of the EU, remainers argued that the financial Fun Fact
and personal privileges of remaining were far Apparently, the
greater. Queen supports the
Brexit as told by her
Brexit resulted in the biggest-ever selloff in global
equities: $3 trillion in 2 days and plunged the to x-Deputy PM Nick
pound to 31-year lows against the US dollar. The Clegg source
event also led the Bank of England to make its big-
gest downgrade to economic growth ever. The
BOE also eases monetary policy further in August
for the first time since the financial crisis.

Lesson: While the global financial markets were tumbling,

easyMarkets traders were protected with guaranteed stop loss,
helping them prevent the potentially catastrophic losses suffered
elsewhere.

©Blue Capital Markets Limited 2016 All rights reserved.

#6 DEUTSCHE BANK
2016 strikes again and Deutsche Bank has had a

disastrous year! Its once mighty share price has

hit all-time lows and it is undergoing a painful
restructuring to come up with enough cash to
cover litigation expenses.
Back in September, the US Department of Justice Fun Fact
fined the bank $14 billion for misselling mort-
“There is no reason
gage-backed securities during the subprime mort-
that Deutsche Bank
gage crisis. The bank tried to negotiate a lower set-
tlement but to no avail. Did investors really think shouldn’t get over its
that Germany (the largest economy in Europe) problems. They have
would let their largest bank fail? It turned out that plenty of capital,
that wasn’t even a consideration as Deutsche Bank plenty of liquidity,”
swiftly announced a buy-back of US$5.4 billion of
Jaime Dimon source
their bonds, which wouldn’t be possible if it were
cash-strapped.

Despite this, the drama has triggered renewed vol-

atility in the banking sector, with many fearing it
may cause another European financial crisis.

Lesson: There were many lessons learnt from Deutsche Bank.

When everyone is panicking, a good trader does his due diligence
before following the crowd. Research showed that the market was
oversold and market kings like Greek/American Jaime Dimon prof-
ited handsomely from keeping a calm head. The trend is for the
markets to make emotional moves and this is often caused by trad-
ers expecting the worst and quickly jumping. Clear headed inves-
tors wait for these opportunities, analyse them and make smart
decisions.

©Blue Capital Markets Limited 2016 All rights reserved.

#7 JAPAN SHIFTS MONETARY POLICY
The BOJ previously doubled the size of its annual ETF purchases to 6 trillion
yuan. Source The changes will help the BOJ manage the impact of its pur-
chases and negative interest rates on Japanese banks, whose profits have
been squeezed by a narrowing of short-term and long-term yields. Governor
Haruhiko Kuroda and the policy board kept that negative rate, imposed on a
share of bank reserves, unchanged at minus 0.1 percent.

“The BOJ is front and center right now. The BOJ is actually doing something,
and because markets are so closely intertwined, it’s feeding through to other
curves.” source

John Gorman, Tokyo-based head of non-yen rates trading for Asia and the
Pacific at Nomura Holdings Inc. source

Lesson: Every cloud has a silver lining and the Japanese yen
remains on fire, surging 15% against the US dollar this year. Traders
may want to watch out for the safe-haven yen rising against the
dollar, a move which might rattle the US markets! easyMarkets
offers USD/JPY trading with low spreads from just 0.026.

©Blue Capital Markets Limited 2016 All rights reserved.

#8 BRITISH POUND FLASH CRASH
Onwards into the dangerous territory of 2016 and on October 6, the British
pound mysteriously crashed more than 6% against the US dollar in a matter of
minutes. The crash occurred in Asian trading, likely in connection to weekend
comments by British Prime Minister Theresa May, who vowed to purse a “hard
Brexit” as early as March 2017 source.

The usually stable currency fell to $1.1819 in early Asian hours, hitting its
lowest level since 1985—a year when it hit $1.0520 amid an acrimonious
mining industry strike. The currency later recovered to hover at the $1.24
handle by the afternoon session of Asian trade. source

Whilst many suspected “fat finger error” in overnight trading, the ultimate
blame was laid at the door of Theresa May and French President François Hol-
lande who had just stated:

“Britain has decided on a Brexit, I believe even a hard Brexit. Well, we must
go all the way with Britain’s will to leave the European Union.” source

The pound went on to fall to a 168-year low against the dollar later that month
and has not fared well throughout the remainder of 2016 leading to the “reces-
sion” word being used by investors.

Lesson: Moves like the GBP flash crash left many traders unable
to close or place new positions due to restrictions by their brokers.
It’s best to ensure that your trading accounts are protected from
huge losses that could result from these events. One way to go
about this might be to consider having stop losses in place for
your positions, particularly those that you plan on keeping open
overnight. Another possible way to protect yourself might be to
trade with a broker like easyMarkets that guarantees against neg-
ative account balances which prevents your account from going
into debt.

©Blue Capital Markets Limited 2016 All rights reserved.

#9 US ELECTIONS
No review of 2016’s shocking market events would

be complete without mentioning the US Elections.

In November 2016, Donald Trump shocked the
world by becoming the President of the United
States with 279 Electoral College votes. As
Trump’s lead extended into the night, futures on Fun Fact
the Dow Jones Industrial Average plunged 750 Over 200 women have
points. They would later recover to finish sharply run for President of
higher for the day, as US investors awaited further the United States.
policy guidance from their new President. However, this list
includes nominees of
Financial markets, institutions and traders were
many minor parties
expecting a comfortable win of Hilary Clinton but
and candidates who
the people of United States voted differently. The
ran for president
markets did not price a Trump victory beforehand
before women won the
so the fluctuation across various instruments was
right to vote in 1920.
big and markets had to correct prices.

Asian markets weren’t spared and Japan’s Nikkei 225 plunged over 900 points
or 5.4%, its biggest single-day loss since Brexit. Hong Kong’s Hang Seng Index
also fell 2.2%. Australia’s S&P/ASX 200 also declined nearly 2%. source

Gold prices skyrocketed as investors ran for a safe haven, reclaiming $1,300 a
troy ounce however, they would later pare gains as the US dollar strengthened
against a basket of world currencies. source

Lesson: Many traders on the easyMarkets platform chose to

hedge their deals with dealCancellation . dealCancellation* allows
traders to cancel losing deals up to 60 minutes from opening and
have their invested margin returned to their account.

©Blue Capital Markets Limited 2016 All rights reserved.

#10 STOCK MARKET PREDICT-
ED TO CRASH IN 2017
Ok, so we know this one hasn’t happened yet but in
November, rumours began of a huge stock market
crash in 2017. Jim Rogers, who cofounded the
Quantum Fund with George Soros, said “A $68
trillion ‘Biblical’ collapse is poised to wipe out mil- Fun Fact
lions of Americans.” source. Prophetic economist Davidson’s predictions
Andrew Smithers also warned that, “U.S. stocks have been so accurate,
are 80% overvalued.” he’s been invited to
shake hands and
James Dale Davidson who correctly predicted the counsel former presi-
collapse of 1999 and 2007 stated: dents Ronald Reagan
and Bill Clinton. He’s
“There are three key economic indicators also been pals with
screaming SELL. They don’t imply that a 50% col- George Bush Sr, Steve
lapse is looming – it’s already at our doorstep.” Forbes, Margaret
Source Thatcher, Boris Yeltsin
and even Donald
Trump.

Source

Lesson: Even with such grim financial predictions of what lies

ahead in 2017, there is no need to fall victim to panic or specula-
tion. Where there is loss there is also gain and you can be sure that
2017 will also bring fortune to many. Traders may want to keep a
level head as the New Year approaches, evaluate their strategy
and implement tools like stop loss and dealCancellation which are
offered by easyMarkets.

©Blue Capital Markets Limited 2016 All rights reserved.

 Whatever lies ahead, with over a decade of
trading expertise, 100,000 fulfilled clients in
160 countries worldwide and exciting trading
tools such as dealCancellation, easyMarkets
might be a great choice for financial traders.

Discover the exciting online world

of easyMarkets now!

©Blue Capital Markets Limited 2016 All rights reserved.

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