Recession

A recession is a significant and prolonged decline in economic activity, typically defined as two consecutive quarters of negative GDP growth. It is characterised by rising unemployment, declining consumer spending, reduced business investment, and lower corporate earnings. Recessions have a broad impact on financial markets, often triggering sell-offs across equities and commodities.

During a recession, equity markets tend to experience sustained downward pressure as corporate earnings decline and investor sentiment turns risk-averse. A trader aware of recessionary conditions might shift their strategy toward shorter time frames, tighten their risk parameters, and focus on defensive sectors or safe-haven assets such as gold or government bonds. For prop traders, understanding the broader macroeconomic environment is important because volatility can increase significantly during recessions, creating both opportunities and heightened risks of drawdown.