Global recession 2020

React to volatility during a recession with the world’s No.1 spread betting and CFD provider.1

Start trading today. Call 0800 195 3100 or email newaccounts.uk@ig.com. We’re here 24 hours a day, from 8am Saturday to 10pm Friday.

Contact us: 0800 195 3100

Start trading today. Call 0800 195 3100 or email newaccounts.uk@ig.com. We’re here 24 hours a day, from 8am Saturday to 10pm Friday.

Contact us: 0800 195 3100

What is a recession?

A recession is a period of reduced economic and industrial activity in which an economy’s gross domestic product (GDP) contracts for two consecutive quarters. Recessions will often cause markets to become more volatile, representing opportunity for traders and investors who are aware of the risks.

A global recession is when multiple countries around the world experience two consecutive months of economic contraction – paired with other factors.2

How is the risk of recession affecting markets in 2020?

Market commentary by Shaun Murison.

How has the Dow Jones Industrial Average performed during different economic downturns?

The sharp ‘V’ shaped price action on major indices suggests that world economies could recover relatively quickly from the pandemic-induced recessionary environment. The stock market is pricing in future expectations in the underlying economy – with gains suggesting that the outlook is improving, and declines suggesting a deteriorating outlook.

The Dow Jones Industrial Average (Dow) represents the 30 largest publicly listed stocks in the US. Since the US is the world's biggest economy, people often turn to the Dow as a leading indicator of economic health. The below graphic shows how the Dow Jones reacted to the first month of each crash for 1929, 1987, 2008 and 2020.

While we can draw parallels from the 2008 financial crisis to what is happening in 2020, the catalysts for these two events are very different. The 2008 recession was caused by a banking and mortgage crisis, and the events of 2020 have been caused by a pandemic.

As a result tourism, hospitality, eventing, retail and the airline industry have been some of the most negatively affected industries in 2020.

While economic activity has been disrupted, central banks from around the world are moving aggressively to accommodate business and financial markets as catalysts to reignite inflation and growth. The expectation is that rates will remain lower for longer as record amounts of stimulus have been pumped into the system.

Central banks also remain ready to offer further financial aid when necessary. If the 2008 financial crisis has taught us anything, fighting the flow of liquidity has been a losing trade in markets. Only a resurgence of the pandemic (second wave), and the disruption to business and supply chains that this might cause, would be able to temporarily inhibit the support from central bank activity at present.

Why trade a recession with us?

Go short or long to capitalise on markets falling or rising in value

Access our exclusive extended hours on over 70 US stocks

Seize opportunity instantly with alerts by email, SMS or push notification

Get full exposure with a small deposit when you trade with leverage3

Safeguard your capital with our risk management tools and negative balance protection4

Deal at home or on the go with our award-winning platform and mobile app5

How to trade or invest in a recession

Market commentary by Shaun Murison.

  • Go long or short on speculative stocks
  • Buy and hold defensive stocks
  • Hedging risk during a recession
  • Speculate on thousands of other markets

Speculative stocks carry a higher degree of risk for traders, particularly in a market recession. These stocks are often noted as outperformers in a bull market, but underperformers in a bear market. Speculative stocks might find less proof of tangible earnings but rather, rely more on the expectation of future earnings growth.

You can go long on speculative stocks either through investing directly, or by opening a position to ‘buy’ with derivatives like spread bets and CFDs.

You can go short on speculative stocks by opening a position to ‘sell’ with derivatives like spread bets and CFDs.

Look out for the following risk factors which can be amplified when trading or investing in speculative stocks:

  • High price to book (P/B) and price to earnings (P/E) ratios
  • High levels of debt relative to equity
  • Weak balance sheets
  • Low liquidity

Compare the main advantages of spread betting, CFD trading and share dealing

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Prices above are subject to our website terms and conditions. Prices are indicative only. All shares prices are delayed by at least 15 mins.

Defensive stocks are the opposite of speculative stocks. That’s because these stocks usually underperform in a bull-market, while they usually outperform in in a bear-market.

These stocks can be companies with strong balance sheets, stable earnings and a consistent dividend policy. Defensive stocks are generally seen to provide essential goods and services which are needed throughout the business cycle.

These are often referred to as non-cyclical goods. Defensive stocks usually include, food, utility and pharmaceutical retailers and producers.

You can buy and hold defensive stocks by investing in a company directly and taking ownership of that company’s shares. You’ll be able to hold onto this investment for as long as you like, or until you’ve achieved a satisfactory profit.

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Prices above are subject to our website terms and conditions. Prices are indicative only. All shares prices are delayed by at least 15 mins.

Traders might consider using a hedging strategy to manage their portfolios in a recessionary environment.

A hedging strategy includes the use of more than one asset in its formation. For example, an investor who has an underlying portfolio of blue chip stocks listed on the London Stock Exchange (LSE) might consider trading the FTSE 100 index to hedge or protect their portfolio.

If the investment portfolio had a total value of £100,000 then the investor could take a short position of equal size on the FTSE 100 index. If the broader market was to fall, the loss in value of these blue chip stocks should be at least partially offset by the gains derived from the short position on the index.

The use of an index to protect or hedge a portfolio will often be a more cost-effective solution to the alternative cost realised if you were to liquidate the entire equity position.

Sector indices can also be used to hedge sector-specific stocks. For example, a banking index could be traded against a portfolio of banking stocks, and a resource index could be used to hedge against a portfolio of mining stocks.

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Prices above are subject to our website terms and conditions. Prices are indicative only. All shares prices are delayed by at least 15 mins.

Get low spreads on major and minor currency pairs.

Deal on the price of an entire stock index rising or falling.

Take a position on commodities like gold, oil and silver.

Trade eight major cryptos including bitcoin, ether and ripple.

Go long or short on 16,000+ shares – or buy and sell them outright.

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Prices above are subject to our website terms and conditions. Prices are indicative only. All shares prices are delayed by at least 15 mins.

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Fast execution on a huge range of markets

Enjoy flexible access to more than 17,000 global markets, with reliable execution

Deal seamlessly, wherever you are

Trade on the move with our natively designed, award-winning trading app

Feel secure with a trusted provider

With 45 years of experience, we’re proud to offer a truly market-leading service

Start trading now

Log in to your account now to access today’s opportunity in a huge range of markets.

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How we help you trade a recession

Make the most of opportunity with our tools and guide.

Comprehensive economic calendar

Sign up for the latest GDP figures, unemployment releases and macroeconomic announcements with our economic calendar. Plus, get alerts by email, SMS or push notification.

Searchable stocks screener

Identify potential trades with our stocks screener. For example, you could search for high dividend stocks, which are generally considered ‘stronger’ companies during a recession.

Hedging and risk management guide

Control your exposure and manage your risk by hedging your positions. Or, diversify your non-leveraged portfolio to protect your investment positions.

Ways to trade a recession

The table below compares the main advantages of spread betting, CFD trading and share dealing:

Spread betting CFD trading Share dealing
Direction Trade on rising or falling prices Trade on rising or falling prices Deal on prices rising
Traded in £ or other base currency per point of movement Contracts that track an asset’s price movements one-for-one Company stock or shares in ETFs
Tax status Free from stamp duty and capital gains tax6 Free from stamp duty. Losses can be offset against profits for tax purposes6 Free from tax when you speculate using an ISA or SIPP6
Risk management Cap your losses with guaranteed stops7 Cap your losses with guaranteed stops7 Cap your losses with a stop order to close
Liquidity Get greater liquidity than the underlying market (where available) Get greater liquidity than the underlying market (where available) Access underlying market liquidity directly
Charges A spread on all markets. No commission. Funding adjustments (excluding futures and forwards) A spread on all markets except shares. We charge a commission on share CFDs, but no spread. Funding adjustments (excluding futures) Zero commission on US share trades, and just £3 on UK share trades, when you trade three or more times a month with us8
Platforms Trade on our web-based platform, mobile app or MT4 Trade on our web-based platform, mobile app or MT4 Trade on our web-based platform and mobile app
Learn more Learn more Learn more

Deal on the UK’s best trading platform and mobile app5

  • Web-based platform
  • Mobile trading app
  • Meta Trader 4

Take control of your trading with our clean deal ticket, clear price charts, and in-platform news and analysis.

Seize opportunity wherever you are, and receive alerts and signals on the go through email, SMS or push notification.

Automate your trading with MT4, one of the most popular third-party trading platforms for forex and cryptos.

Direct market access (DMA) for the experienced trader

Deal straight into the order books of major equity exchanges with DMA. Available on CFD trading and share dealing accounts, it provides liquidity from multiple venues and lightning-quick execution.

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1 Based on revenue excluding FX (published financial statements, June 2020).
2 The other factors for a global recession to be in effect include a decline in annual per‑capita real world GDP, paired with a decline in one or more of the following macroeconomic indicators: industrial production, global trade, capital flows, oil consumption, employment rate, per‑capita investment, and per‑capita consumption.
3 Trading with leverage can increase your potential losses as well as profits.
4 Negative balance protection applies to trading-related debt only, and is not available to professional traders.
5 Best trading platform as awarded at the ADVFN International Financial Awards and Professional Trader Awards 2019. Best trading app as awarded at the ADVFN International Financial Awards 2020.
6 Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.
7 You’ll incur a premium if a guaranteed stop is triggered.
8 Our best rates for commission on US shares are applicable for clients who opened three or more positions on their share dealing account in the previous month.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.