How to Trade When Drums of Trade War are Beating – Introduction
On Thursday last week, Donald Trump held a meeting with the leaders of the top steel and aluminum companies. The meeting was called to address the decline in these industries in the past decades. After the meeting, Trump told the press that the country would introduce fresh tariffs on all steel and aluminum imports.
This was big news coming from the world’s largest economy and one of the biggest importers of steel and aluminum in the world.
Trump’s plan to start imposing tariffs on these products was an indirect response to China, which is the world’s largest steel exporter. For decades, since the country became a member of the World Trade Organization (WTO), the country has ramped up the production of steel, leading to an increased supply. This has brought the price of the products down and contributed to the closure of many American steel companies.
After the announcement, world leaders responded accordingly. The European Union responded by announcing that they would start new tariffs on targeted American-made products like wines and jeans. The products they target will be those with headquarters in senior republican led states such as Wisconsin and Kentucky.
At the same time, countries like Canada, South Korea, and Japan threatened to retaliate.
On Saturday, Trump responded to Europe’s threat by announcing that America would respond by applying more tariffs on their cars. Today, the US charges a tariff of 2.5% on all European cars like Porsche and Mercedes while the European Union charges a 10% on all American-manufactured cars like Chevrolet.
In other words, a global trade war will be launched this week when Trump signs the new tariffs. Other countries will retaliate.
As a trader, these new developments are very important because of the implications they will have on equities, currencies, and everything to do with the global trade.
How then do you trade?
First, the most important thing is to be informed. By having the right platforms to get the news, you will be at a better place to make decisions. I recommend that you download applications like Twitter, Reuters, and Bloomberg and have the notifications turned on. If possible, I recommend that you have CNBC and Bloomberg TV turned on every time you are trading. Doing this will enable you to get information as fast as possible.
The second thing is to better manage your risks. You should do this by opening small trades that won’t compromise your account if the worst comes to worst. The recommended guide is to only risk less than 5% per every trade you open.
Third, you should avoid being concentrated in an industry especially when you are an equities trader. In this, you should have a diversified portfolio of diverse companies which operate in different countries. Doing this will mitigate the risks you will find yourself in. for example, if you are invested in a steel company, you should also invest in companies that are not affected by steel like Facebook and Twitter.
Finally, you should always have a stop loss on your trades. A stop loss enables your trades to automatically shut down when a certain level is reached. Having a stop loss will enable you to have a peace of mind knowing that your account is protected well.