Learning how to take advantage of price swings and volatility is very important for everyone trying to succeed as a trader on the international stock markets.
While stock investors usually only look for stocks that have great potential for growth in the long term, day traders want to find as many short-term opportunities as possible regardless of whether the price will increase or decrease.
This type of mindset is very important to nourish as a trader and possibly even more so this year due to the current market situation.
The Current Market Situation Could Create Higher Than Normal Volatility
What makes 2018’s stock market conditions different from previous years?
Well, there are several things that set this year’s market apart from previous years. Although, there are two specific situations that come to mind when comparing the market now to last year.
First off, the American stock market has been skyrocketing since Trump took office in 2017. Naturally, this has created a lot of great investment opportunities, but some analysts are claiming that the market is about to hit a ceiling.
We won’t know if this is true or not until the market actually turns. However, the worry about what could happen has made the market a bit more unstable in the past few weeks. And when worry grows, volatility will follow.
Secondly, the ongoing trade war which is also connected to Trump will have an effect on the volatility. While the intention of the trade war is to boost the ability of American companies to compete internationally, there is a considerable risk that it will backfire.
A good example of that is Harley Davidson, who ended up in a situation where they would start losing from the trade war and instead decided to move parts of their production to Europe in order to avoid tariffs. Naturally, this also has an effect on volatility and could even be what pushes the market into a recession.
Our point is that we run the chance of experiencing higher volatility than normal, especially with August and September around the corner since, historically speaking, they are the most volatile months of the year.
Your job is to take advantage of this situation, and we can provide two easy tips on how to best do so.
CFD Trading
CFD trading has long been considered a less prestigious way of trading, but the truth is that it provides many benefits for traders during high volatility.
The idea with CFD trading is that you have two options: you can either open a buy or a sell position based on whether you think the price of an underlying asset (in this case a stock) will increase or decrease.
This makes it very easy to trade stocks that are falling in price or that you predict will fall in price.
CFDs have also had an unfair reputation for being a “scammers paradise,” but that is also incorrect. In fact, today, the CFD market is one of the most tightly regulated markets in the world, and there are some legitimately good CFD brokers to use.
For example, eToro is licensed and regulated by CySEC, FCA, and ASIC, have millions of active traders, and has handled over 250,000,000 trades in the last couple of years. You can read more about them in this eToro review.
While these numbers aren’t close to what an exchange like the NYSE or Nasdaq sees, it should still be enough proof that CFDs aren’t as bad as some assume. And if anything would happen to you or your funds, you will always have the regulatory agencies on your side.
Short Selling
Unfortunately, CFD trading isn’t allowed in some areas of the world including the United States. Therefore, there are other ways one can benefit from volatile markets.
Short selling is a classic concept among stock and commodity traders, but, strangely enough, not something everyone is aware of. The goal of a short sale is the same as opening a CFD sell position: to invest in falling prices.
That being said, the process of a short sell is more complicated. Instead of opening a simple position your job is to sell a stock that you don’t own with the prospect of being able to buy it back at a cheaper price point before selling it for a profit again.
Because of this, some traditional stock brokers only offer short selling to certain clients, if even at all. And in many cases, traders are charged inflated fees for this type of trading. That is why we recommend CFD trading to everyone who is allowed to partake in it.
Short selling a stock using CFDs does not come with any extra charges and is as easy as a regular investment.
Final Thoughts About Volatile Market Trading
Being able to invest in volatile market conditions is an essential skill for all traders to learn, and in our opinion, it has never been more important. Due to the current market and political conditions, the international stock market is bound to experience higher volatility than normal and great investment opportunities might arise.
In the case of volatile investment opportunities, we recommend CFD trading, but regular short selling is more than enough.
