Supply and demand are undeniably one of the primary elements that drive forex market volatility. The value of a currency increases so quickly on the market when a high demand is made for it. The same principle will be observed during the FIFA World Cup 2022 when travelers moving into Asia will be in high demand for Asian currencies to participate in the FIFA World Cup. This article will guide beginners on a detailed understanding of the general effects that the FIFA World Cup will have on Forex trading.
Forex trading and the FIFA World Cup 2022
This year’s FIFA World Cup 2022 is one of the most highly anticipated global events that will have a significant impact on global forex trading markets. After the Olympics, the FIFA World Cup is often regarded as the second-largest sporting event in the world, attracting competitors from over 32 different countries.
Each player will be required to travel to Qatar in order to participate in this event. As well as the players, there will be a great number of sports lovers traveling to Qatar as well to cheer on their nations and favorite players during the event. This includes the business class, investors, football fans, and countless others.
During the period of the event, it is expected that the event will attract over 100 million visitors to Asia during the period of the event. There is a good chance that these travelers will be required to exchange their currencies for Asian currencies. As a result, Asian currencies will be in high demand, particularly Qatari Rial (QAR).
The impact of the World Cup is not all fun and games!
Since the World Cup began, forex trading rooms around the world have been flooded with football fever. As traders focus more on the matches and less on risk-taking in the next few weeks, trading activity may become languid, especially in European markets. There will not be as much trading unless people are forced to engage in forex trading by news or price movements.
Analysts have noticed historically that volatility and volume take a vacation during the World Cup month. There may, however, be some sharp fluctuations in a few weeks as traders expect the markets to reflect the “slow economic data” of the current period.
There is more to the World Cup than just fun. Tuck School of Business research indicates that a country’s “mood” is affected by its World Cup loss to such an extent that the local spot market in that country declines following the loss. During the 2010 World Cup, Dartmouth University found that CFD trading markets (like forex) declined by 0.4% on average after a national team lost. Interestingly, markets did not gain momentum when the national team won, remaining unchanged.
Even in the US where soccer is the most popular sport, trading volumes dropped by 43% when the US team was playing.
There is also the possibility that some traders’ eyes are glued to the TV during important games, resulting in lower trading volumes. Qatar’s time zone means that many games that will be broadcast worldwide will take place during European and American trading sessions. In the West, many forex traders will choose to watch the tournaments rather than trade currency.
According to the analysis of the previous FIFA World Cups, the trading volume in countries whose teams participated has fallen sharply. Generally, trading in the West will fall by half during the World Cup. During the time of the World Cup, trading volume decreased substantially across multiple countries, including those where football is not the most popular sport.
What effects will the FIFA World Cup have on Forex Trading?
While Asian currencies will benefit the most from this event, particularly the Qatari Rial, other currencies outside Asian countries will experience a similar effect. As investors turn their attention to Asian countries, most currencies will likely drop in value.
The strong US dollar is more likely to benefit as well from this event. Several people have reported that while on vacation abroad, they often prefer to convert their local currency into US dollars. Since the US dollar is the standard means of exchange in the forex market, this makes sense.
Generally, the World Cup was characterized by lower trading volumes, which resulted in a higher level of volatility. Whenever there are fewer traders in the market, liquidity goes down. As a result, individual trades can have a greater effect on the market.
Other potential impacts:
Historically, the local currency tended to trend higher during the events due to the influx of visitors using the local currency. Qatar’s Riyal, however, is not commonly traded because it’s pegged to the dollar.
In addition, if you own Adidas CFDs or are considering getting in on Adidas action, this might be a good opportunity for you. World Cup sales typically increase by 7-10% for Adidas during the quarter due to its partnership and sponsorship with the tournament. In turn, that often results in a similar bump in stock prices. Adidas would love to gain some positive exposure out of the FIFA World Cup to regain its sales numbers after cutting off its partnership with Kanye West.
The major currency pairs will likely be less affected by lower volume since participants from other markets will still be trading. However, emerging market currencies, especially where football is extremely popular, may have a noticeable effect on the market.
In addition to the world cup hosting country, the currency of the winning country will also reap the benefits. The FIFA World Cup prize money, which is reserved for the competition's winners, is expected to boost the country's revenue and attract more investors to the particular currency in forex trading. We can therefore expect a massive increase in the country's currency exchange rate once they win the FIFA World Cup in 2022.
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