Navigating volatility in an ever-changing world

·5-min read
Analysing investment strategy for a volatile market
Analysing investment strategy for a volatile market

As repercussions of the global health crisis continue to impact our world, the business landscape has been evolving to keep pace with ongoing developments. Industries that were severely affected by the restrictions at the height of the COVID-19 crisis such as travel, transportation, and logistics are experiencing a rebound due to pent-up consumer demand and companies with backlogs to clear. At the same time, underlined by the growing sense of urgency to protect our planet from rapid devastation, corporations have been looking beyond their bottom lines and incorporating more ESG elements into their operations to resonate with discerning investors and create a positive impact. As a result, sustainability-driven sectors such as EV and biotech are brimming with investment opportunities.

The acceleration in digital adoption and transformation is also playing a significant role in shaping decision-making. With the Web 3.0 concept gaining traction amongst the younger generation who are leaning towards more decentralised ways of making and saving money, cryptocurrency and NFTs have become popular investing avenues. Driven by these themes, trends, and recent events, the face of volatility is changing.

On top of geopolitical disruptions, social media was a key focus behind major market movements in 2021-2022. For example, the short squeeze of American video game retailer GameStop’s stocks, which caused severe losses for short sellers and forced brokers to curb trading, was believed to have been initially triggered by a sub-section of Reddit users. Similarly, Elon Musk’s unsolicited, non-binding offer to purchase social networking giant Twitter for US$43 billion continues to make headlines around the world. Regarded by many as a hostile takeover bid, his actions have put pressure on regulators to relook at the ways with which investors are safeguarded. The rise of Tesla to the ranks of America’s top five most valuable companies with a market capitalisation of over $1 trillion has also been under scrutiny, due to the unprecedented option trading volumes the company’s growth has been based on. Combined with the recent crypto crashes and inherent weaknesses in the digital currency market structure, investors today are having to deal with many circumstances outside of their control. The latest Book of Volatility by Bloomberg offers more insights to learn from in this regard.

According to Ethan Li, Education Lead at IG, traders should employ proper risk management strategies to protect their trading accounts from huge losses in times of high volatility. Without a proper trade plan, their hard-earned profits can be lost with just one or two bad trades. Most importantly, they should follow through with their trade plan and not allow emotions such as fear and greed to affect their decisions.

Contracts for Difference (CFDs) are also commonly used as hedging tools as they are bi-directional trading instruments, according to Li. With CFDs, traders can speculate on financial markets such as shares, forex, indices and commodities without having to take ownership of the underlying assets. By trading on margin, they can enter the market with a lower capital outlay. Although this leverage can amplify potential gains under market conditions that favour the trader, the opposite is also true when it comes to losses. If a trader is direction-neutral and wants to speculate on volatility, using CFD options to execute a straddle strategy could be something to explore.

As the markets look set to become more volatile than ever, the right tools and expertise can make all the difference – whether you are a novice or a seasoned trader. Kickstart your journey with IG, the world’s leading CFD provider that offers traders an intuitive platform to grow their funds across 17,000 markets with:

Risk management tools: IG provides you with tools such as guaranteed stops and Knock-Outs so you can manage your maximum risk for each CFD trade.

• Unparalleled market access: IG’s broad network gives you the opportunity to tap into 24-hour indices, forex, shares, commodities and more across the globe.

• Education and skill-building: IG supports you with a wide range of courses and educational materials to develop your trading knowledge and skills via the IG Academy.

• For expert views and value-added strategies on how traders can mitigate risks amid volatility, download Volatile Times, a free ebook from Bloomberg.

Disclaimer

This advertisement is issued by IG Asia Pte Ltd (Co.Reg.No. 200510021K) for general circulation and informational purposes only. IG Asia Pte Ltd is regulated by the Monetary Authority of Singapore and holds a capital markets services licence for dealing in capital markets products that are over-the-counter derivatives contracts and is an exempt financial adviser.

All forms of investments carry risks and trading CFDs may not be suitable for everyone. CFDs are leveraged instruments and can result in losses that exceed deposits, so please ensure that you fully understand, and are aware of, the risks and costs involved. Refer to the Risk Disclosure Statement and Risk Fact sheet available at IG.com/sg.

IG provides an execution-only service. The information in this advertisement does not contain (and should not be construed as containing) investment advice or an investment recommendation, or an offer of or solicitation for a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. You should consider your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

This content was produced in partnership with IG Asia Pte Ltd

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting