Recession and what traders should know about it


A recession is when your partner has incurred loss, and if it is you who have incurred it, it is depression. In all seriousness, though, a recession is essentially a moderate drop in production and a slowdown in economic advancement. If the situation continues getting worse, the recession results in a major economic nosedive i.e., depression.

In this article, we are going to shed light on the recession types and, most importantly, certain things traders should pay attention to when the situation in the financial markets changes.


1. Types of recession
2. Factors the trader needs to know about
3. How to track recession: tips for the trader
4. Is there a way to survive recession and depression

Types of recession

The recession is tightly linked to the economic climate. However, different factors may serve as a catalyst thereof.

Technical recession

It is a gradual decline in GDP or GNP over a certain time period. In every country, this time period may differ.


Keep in mind that data on changes in GDP and GNP are updated with delay.

This is why the trader should take a cue from leading indicators that will help to timely track down economic changes.

Unplanned recession

Unforeseen changes in the world or in the country such as war, catastrophes, and other turmoil may lead to recession. What is particularly dangerous about it is that it’s impossible to predict.

Recession induced by the country’s external debt

The countries should have clear anti-crisis practices and guidelines in place in order to pay off the debts, shorten the recession period and reduce its economic impact. Macroeconomic indicators can help the trader to predict the situation.

Recession induced by public opinion

Essentially, public dissatisfaction is what triggers it. It is easier to handle this type of recession since it is mostly linked to psychological factors.

In order to stay informed, traders keep close tabs on the rhetoric of representatives of central banks and high-profile officials very closely. E.g. a lot of traders already treat Trump's tweets as a macroeconomic indicator.

Recession explained in layman’s terms

Factors the trader needs to know about

The recession is basically a selection of macroeconomic indicators. By doing a detailed analysis, the trader can identify a trend and prevent risks when the recession hits hard.

Key signs of the recession include:

  • Escalation of inflation.
  • Increase in prices for goods and services.
  • Decline in granted loans and deposits.
  • A growing number of international money transfers.
  • The tendency for depreciation of stock indices.
  • A drop in production volumes.
  • Tax hikes and decline in payments.
  • Job cuts.
  • State debts.
  • The predominance of imports over exports.

All the mentioned factors when occurring across the board imply that there are certain economic problems. That being said, just one factor alone should not send everyone in a panic mode.

How to track recession: tips for the trader

Even though the recession is a significant economic downturn, it can, however, give you a perfect chance to make a profit. It is no secret that the traders can make money when prices are falling and dropping. What’s important here is to keep trading instruments diversified. That way you can profit from them.

To analyze the economic backdrop and work out a relevant trading strategy for trading, let’s say, stock indices or popular major pairs, traders keep a close eye on specific data.

It includes:

  • Yield curve. It serves as a key recession indicator. This line on the chart demonstrates the relationship between the yield of bonds having equal credit quality but different maturing dates. The flatter the curve of the state bonds is, the slower the country’s economy is developing. Inflation affects the yield on the long securities, whereas the change in the key rate of central banks has an impact on short ones.
  • Corporate profits. Revenues of big corporations are a major indicator of the stock market. These figures give a clue regarding the state of the country's economy.
  • A lot of financial meltdowns and loan repayment delays. This is a sign of excessive credit expansion, even when it involves regular citizens of the country. This factor may point to the economic slowdown in, as well as the recession.
  • The copper-gold ratio. The demand for gold goes up when the economy slows down. In contrast, when the economy is booming, copper gets to bask in popularity.

Is there a way to survive recession and depression

Yes, there is. Let’s recall the year of 1929 in the United States. This is when the infamous crisis triggered by the unstable securities market hit the country. The collapse of stocks and bonds of many leading companies resulted in the Great Depression. Or the American crisis of 1937-1938.

The U.S. suffered greatly. However, ultimately it gained more than it had lost. Thanks to the recession, it was possible to calculate all of the market risks and opportunities, stabilize stock exchanges, strengthen the exchange rate of securities and determine the leading corporations that remain in the game to this day.

There has been much talk about the recession recently. To not miss it, the traders need to do a comprehensive fundamental analysis. And this is where the economic calendar, fundamental news, analytical reviews by experts, including video content can come in handy.

What to know:

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