What happens during a Recession?

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Many fear recession but what does it mean? How does it affect the market?

It is a significant decline or a halt in the growth of the economy that lasts for six to 18 months. Traders and investor associate this term with what happened during the last decade. The last worldwide recession caused the market to crash significantly, numerous companies went bankrupt and many people became jobless. Many were traumatized by it. And now, they are alarmed and cautious about the recent economy. But is recession really a bad happening?

A recession is nothing but a drop in demand. It may be unpleasant, but it is a normal part of the business cycle. This business cycle happens when there is a surplus of production and scarcity of demand. During this cycle, people don’t have enough money to spend and companies won’t have the resources for production. Storing their stockpiles in a warehouse and making it stagnant. So they start laying off employees which may then cause unemployment and a drop in the Gross Domestic Product because of decreased production.

Investors are very watchful during this business cycle. They won’t trust a certain company even if it is doing well despite the recession. During this period, investors do not trust the market because the whole market has a common trend — it’s going down. Although there are circumstances for some exceptional stocks that tend to counter the general trend. If the whole market declines, individual stocks will decline too. As a result, investors will move to a cash position and convert their investments into cash. Which will further cause the market to decline?

Arguably, one of the best times to begin investing is during a recession. Despite the negative happenings, there are still good opportunities to look up to in a recession. For example, market prices greatly fall down. Which means you can buy mutual funds, real estate, stocks, bonds, and more for far less than you could afford before the recession happened. While other investors are busy dumping their assets, you can step in and pick them for a portion of their value. Investors act cautiously during this period. But they remain observant in watching the market, waiting for opportunities to grab a high-quality asset at a discounted price. Recessionary environments are difficult but it can still provide enterprising investors with their desired outcomes.

After the recession comes to the recovery. This is a period in the business cycle which signals the end of a recession because of increased business activity. During a recovery, the economic conditions normalize; the market has low-interest rates and is rising in growth.

Opportunities are around all the time, search for them and welcome them when they present themselves. Trade with us here in Millennium-FX.

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