How Will The Cost Of Living Crisis Impact Trading?

We’ve recently seen global inflation surge to the highest level in decades. With the ongoing conflict in Ukraine, supply challenges as the result of Brexit and ongoing budget crisis as the result of 2 years of COVID lockdowns, most stock markets are reporting drops of more than 20%.

The UK government has recently announced one of its harshest ever budget reviews, with almost all UK households expected to feel the pinch over the next year. Interest rates are climbing, rent costs are increasing and energy costs are at all-time highs. Surely, with all this going on, the trading market will take a hit as fewer people have funds to invest? Let’s take a look at what the cost of living crisis means for trading.

What Is The Cost Of Living Crisis?

Rising costs from mortgages, rent, food and energy have all meant that, on the current basic UK salary, more and more people are struggling to pay their outgoings down to cost inflation. Reaching a 41-year-high of 11.1% – up from 10.1% in September -, inflation is at the highest point seen in a generation.

93% of people in the UK are reporting an increase in their living costs compared to a year ago, with 42% of adults finding it very or somewhat difficult to pay their energy bills. Simply put, people are struggling to pay even the most basic of utilities and bills as a result of global inflation.

High Inflation Rates And Higher Interest Rates

Most countries have seen inflation rise. In response, banks have begun rolling out their most aggressive policies in decades. In the US, for example, the Federal Reserve has increased interest rates by 300 points.

Whilst banks traditionally make more when interest rates are higher, when it comes to mortgages and loan repayments, this can often mean that when interest rates increase alongside almost all other outgoings, lenders are left struggling to make repayments that may have increased by hundreds of pounds each month. As a result, this means that the banks then lose out on money. The price of fixed rate mortgages are up, leaving banks to reprice their deals upwards to keep up with inflation rises.

How Does Inflation Impact Trading Volume?

High inflation has an impact on the financial market – it’s as simple as that. With the price of most assets dropping in 2022, stock markets are also reporting decreases. This year alone, cryptocurrencies crashed in value, going from around $3 trillion to less than $1 trillion. Even traditional trading commodities that were long-perceived to be protected from inflation, such as gold and silver, saw prices drop by 20%. This worldwide market volatility has had a huge impact on trading, with stock and crypto prices crashing.

In cryptocurrency trading especially, investment fraud lawyers are warning that trading volume is, and will continue to, crash. Centralised exchanges such as Coinbase have seen their trading volumes tumble. Whilst most experienced traders will be able to navigate this volatile market with ease, new traders are being warned against making trades to increase their income or making trades based solely on potential returns. Unfortunately, there are still many cryptocurrency scams circulating that prey on inexperienced traders making large trades. Before investing, be sure to do your research.

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