As MetroTrade officially opens its doors this month, we’re excited to welcome you to our first post-launch newsletter.
While we’re busy getting settled and ensuring our clients have the best possible trading experience, we also want to continue attempting to provide valuable market insights through our “That’s Why We Did That” series. This month, we’re examining how the Trump administration’s proposed tariffs could impact our corner of the markets – a topic that deserves careful, objective analysis regardless of political leanings.
Over the past couple of weeks, I have read a number of other author’s takes on how the administration’s policies are going to affect their corner of the world and the author usually prefaces or closes with something along the lines of ‘so far nothing we have anticipated as come to fruition so please take this article with a grain of salt…’
That said, our corner of finance is built on hedging and speculating volatility and nothing creates market volatility like broad new policies applied unevenly.
Overview of Proposed Tariffs
In my opinion the lack of clarity around the ultimate reasons for implementing the tariffs is the core reason for the prolonged volatility – are they a foreign policy tool, an inflation-busting tool, a long term economic driver, or a little bit of everything?
Until the policies are in place, the exclusions formalized, and the negotiations concluded, I anticipate elevated volatility for the foreseeable future.
Direct Market Impacts by Asset Class
Currency Futures
Currency markets typically react swiftly to tariff announcements. Contrary to intuition, the dollar often strengthens during trade tensions despite the president’s stated preference for dollar weakness, although in this case the dollar has been weakening significantly in this early phase of the process. This relationship creates interesting dynamics for currency futures traders.
Historical data from 2018-2019 shows that currency implied volatility often rises ahead of actual policy implementation, creating opportunities in currency options markets.
Commodity Futures
Agricultural futures frequently bear the brunt of trade tensions, with soybeans providing a classic example. During the 2018 tariff escalation, soybean futures dropped nearly 20%, creating both hedging necessities for producers and speculative opportunities for traders . China is still the primary buyer of US agricultural products, so any new tariff implementation will pressure agricultural futures.
Industrial metals like steel and aluminum face complex dynamics, as domestic prices typically rise under tariffs while global benchmark prices adjust differently. This divergence creates fascinating basis trading opportunities for experienced futures traders.
Energy markets, while somewhat less directly impacted by tariffs, could see secondary effects as global economic growth expectations shift. As evidenced just after the announcement of tariffs, crude oil and natural gas futures react more to the macroeconomic implications of trade policies than to direct tariff impacts. Additionally, the administration has expressed interest in increasing LNG exports, which may create additional price volatility, with prices exposed to a larger market and audience.
Equity Index Futures
Equity markets have historically shown sector-specific responses to tariff announcements. Manufacturers with global supply chains have historically tended to underperform, while domestically-focused companies often weather trade tensions better. This disparity creates opportunities in sector futures and options.
The Micro E-mini indices, particularly the Russell 2000 which represents more domestically-focused companies, may demonstrate interesting disparities as compared to the S&P 500 with its multinational components. Volatility expectations, as reflected in VIX futures, typically increase during periods of trade policy uncertainty.
Secondary Market Effects
Supply chain disruptions represent a critical secondary effect of tariff implementation. Companies often rush to import goods ahead of tariff deadlines, creating temporary surges in shipping and logistics costs.
Inflation concerns naturally emerge during tariff discussions, as import costs potentially rise across categories. Interest rate futures tend to reflect these inflation expectations, though the relationship is complex. During the 2018-2019 tariff implementation, markets initially priced in higher rates due to inflation concerns, but eventually shifted to anticipate rate cuts as growth concerns took precedence. Early indications signal this may be tempered during this round of tariff discussions as consumers back off spending while waiting for the dust to settle.
Traditionally, liquidity in certain markets can diminish during periods of high trade policy uncertainty. This tendency creates both risks and opportunities for traders, particularly in thinner markets where price dislocations might occur.
Trading Strategies and Risk Management
For companies importing goods that might face new tariffs, futures contracts can lock in prices before tariffs take effect. For example, if you import steel and expect prices to rise due to tariffs, you could use futures to secure today’s prices for future deliveries. Similarly, currency futures can protect against exchange rate shifts that often accompany trade tensions.
On the flip side, if you export products to countries that might impose retaliatory tariffs (like agricultural products to China), you face the risk of reduced demand and lower prices. Hedging with futures contracts can help lock in current prices before these effects hit the market.
During uncertain times like these, options strategies may become especially useful. Strategies like straddles (buying both a call and put option) can be valuable when you’re unsure which direction the market will move, but expect significant movement. This approach typically costs more upfront (because you are buying both contracts) but provides protection regardless of whether prices rise or fall dramatically.
Finally, don’t put all your eggs in one basket. When trade tensions rise, markets often behave differently than usual. Assets that typically move together might suddenly move independently or in opposite directions. By trading across different types of futures markets (currencies, commodities, indices), you can reduce your overall risk exposure when these unusual patterns emerge.
Historical Perspective
Some economists feel markets have become somewhat more efficient at pricing tariff impacts after the experiences of 2018-2019. During that period, initial reactions were often sharp but followed by mean reversion as actual economic impacts proved more nuanced than feared.
The timing gap between announcement and implementation creates valuable windows for strategic positioning. During previous tariff rounds, this period often saw the largest market dislocations as participants rushed to adjust positions before deadlines.
An important lesson from previous trade tensions is that specific, targeted markets often experience more dramatic moves than broad indices. The soybean market’s reaction in 2018 far exceeded the overall market response, highlighting the importance of understanding product-specific exposure.
Conclusion
As the new administration’s trade policies take shape, futures markets will provide both essential risk management tools and trading opportunities. Market participants should remember that implementation often differs substantially from initial announcements, creating a dynamic environment that could reward careful analysis and flexibility.
At MetroTrade, we’re committed to providing the tools, insights, and support our clients need to navigate these market conditions effectively. Whether you’re hedging business exposure or seeking to capitalize on market movements, our platform is designed to help you execute your strategy with precision.
In this environment of potential policy shifts, staying informed and maintaining disciplined risk management becomes even more critical. We look forward to being your partner in navigating these markets in the months ahead.
And that’s why we did that.
The above represents our current analysis based on historical patterns and announced policies. All trading involves risk, and past performance is not indicative of future results. This newsletter is provided for informational purposes only and does not constitute investment advice.
[3] https://www.ers.usda.gov/topics/international-markets-us-trade/countries-regions#:~:text=China%20is%20closely%20followed%20by,exports%20have%20decreased%20since%202000
[4] https://oilprice.com/Energy/Crude-Oil/LIVE-Oil-Prices-Continue-to-Fall.html#:~:text=Russian%20Urals%20Crude%20Falls%20to,its%20economy%20from%20the%20fallout
[5] https://thehill.com/policy/energy-environment/5203653-trump-administration-approves-gas-exports-cp2/
[6] https://www.bloomberg.com/news/articles/2025-04-07/vix-surges-again-as-contracts-signal-volatility-to-stay-high
[7] https://www.reuters.com/markets/us/us-consumer-prices-unexpectedly-fall-march-2025-04-10/
[8] https://www.investopedia.com/articles/trading/11/understanding-liquidity-risk.asp
[9] https://www.invesco.com/us/en/insights/tariffs-rattle-stock-markets-long-term-impact.html