Every week we provide insights into popular assets and hot questions, so you can easily learn more about the investment market in bite-sized pieces.
In this Markets in Focus we take a closer look at Volatility
Understanding Volatility
What is Volatility
Volatility measures how much prices fluctuate over time. High volatility implies rapid price changes, while low volatility suggests more stable prices. Although some level of volatility is essential to profit in the markets, how investors perceive it depends largely on their risk tolerance.
For traders who thrive on rapid market changes, high volatility can provide more opportunities to profit from trades. Investment instruments like CFDs (Contracts for Difference) are particularly useful for speculating on price changes during volatile periods, making them a favored tool among traders in such market conditions.
Volatility Trading in CFDs
Volatility trading has become a popular strategy, especially among CFD traders, who use price swings to their advantage. The greater the market fluctuations, the more opportunities to capitalize on price movements.
Using CFDs in Volatile Markets
Volatility and Short-Term CFD Trading
- CFDs are particularly attractive to short-term traders, especially day traders, as they can benefit from price swings over short periods. High volatility increases the chances for quick gains, which many traders rely on to generate profits.
How Long-Term Traders Utilize CFDs
- Long-term traders also use CFDs, but with a different approach. In addition to speculating on short-term price movements, long-term investors use CFDs for hedging—a strategy to protect their portfolios from market downturns.
What Causes Market Volatility
Volatility is often triggered by major events, including:
- Economic announcements like interest rate changes
- Political instability like times during US presidential elections
- Natural disasters like unexpected hurricanes and wildfires
- Global health crises, such as the recent COVID-19 pandemic
These events can lead investors to take drastic actions, affecting the financial markets and creating volatility.
Wishing you a successful trading week on the Change App, whether the markets are volatile or steady.
Until next week!
