During volatile times in the stock markets, many investors begin to question their investment choices. When markets tumble, like at the end of the first semester of 2020 due to the uncertainty surrounding Covid-19, many investors lost money and gave in to panic. Many realized that they do not know how to handle panic when markets are volatile.
Despite all of this, volatility can in fact offer great stock investment opportunities – you just need to know how to make the most of it.
What is volatility? Investopedia gives the following definition: “Volatility is a statistical measure of the dispersion of returns for a given security or market index. In most cases, the higher the volatility, the riskier the security. Volatility is often measured as either the standard deviation or variance between returns from that same security or market index”.
How can you take advantage of volatile times in the share market? There are different ways you can use volatility to your advantage when investing in stocks.
Firstly, you can buy stocks through your bank or an online broker without leverage. In that case, you will be the owner of the shares, receive dividends, and benefit from other shareowner rights. Secondly, you can use leverage and margin trading via CFDs to trade stocks and make a profit during rising and falling price movements, without owning the underlying asset.
Trading stocks through CFDs can be done with online CFD brokers. While there are many available, not all brokers are created equal, and it’s important to choose the right one for you to succeed in share trading. You need to pick a broker that is regulated and provides great tools for its traders. easyMarkets for instance is regulated in various regions of the world (meaning it has to meet several regulation requirements) and offers innovative tools and great trading conditions for traders wanting to trade stocks.
How can you better protect your portfolio in volatile times? easyMarkets offers a free guaranteed stop-loss and take-profit, no slippage, and negative balance protection to help its traders better manage their risks. Another great tool offered by easyMarkets – one that’s much appreciated by the trader community – is the “dealCancellation†tool, allowing traders to undo losing trades within a duration of 1, 3, or 6 hours, for a small fee and subject to terms.
In addition to using your broker tools to better protect your investment, you always need to remember your financial goals to stay on track and always follow your investment plan, especially during a market downturn. It’s also interesting to review long-term trends in volatile times to be able to spot stocks with great growth potential you can buy at bargain prices.
Final word
Avoid psychological pressures when the markets move against you and you lose money. It’s important not to panic as soon as you lose money during volatile and uncertain market conditions. Think about your trading plan and your investment horizon. Rebalance your portfolio if needed, after you’ve analyzed business (as well as market) cycles to apply a better diversification strategy, while taking advantage of opportunities arising in the market.