Trader Insight
While many factors contribute to market crashes, common themes include extreme overvaluation, panic selling, and a sudden loss of confidence. They’re often exacerbated by an environment of high-speed trading, 24/7 news cycles, and social media speculation. Understanding what’s driving them can help you recognise patterns, anticipate risk, and stay grounded during periods of volatility.
A global market crash can be an incredibly disruptive event. But it doesn’t necessarily mean that your investments will lose value. A well-diversified portfolio that fits your long-term goals and risk tolerance should withstand some level of market volatility. During market downturns, stocks and bonds often see higher levels of demand than during more stable periods, driving their prices up.
Several factors can cause a market decline, including political events and weak economic data. For example, the Great Depression was triggered by the failure of Lehman Brothers and the near-failure of other financial institutions around that time. This created widespread fears about the state of the economy, and investors pulled their funds from banks and stocks.
Market crashes can also be a result of excessive margin buying or unchecked speculation. Using leveraged strategies like CFDs and options can amplify losses, particularly during periods of extreme volatility. This kind of behaviour is fueled by fear and can lead to overreactions that can lock-in losses. A considered, rule-based approach to investing and trading tends to produce better outcomes during most market downturns.