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Trading the markets in their current volatile state

By CMC Markets

Trading the markets in their current volatile state

With the recent mixture of overbearing news, including China’s slower economic growth and constant declining of oil prices, the markets are once again hit with uncertainties. Jason Hughes fromaward-winning financial services provider, CMC Markets, tells us what to look out for when trading through times of such volatility.

Q. What’s causing the volatility in the markets now?

A. 2016 has had one of the most volatile starts for financial markets for many years. The uncertainty over the health of the global economy, the divergence in central bank policy, and a general risk-off sentiment - which hammered emerging markets in particular - have generated large price moves across many asset classes. The catalyst for much of this is the continued fall in the oil price, as markets get on top of a perceived endless over-supply. A general worry over rising interest rates and an end to ‘easy money’ credit conditions - fuelled by multiple rounds of QE programs from many central banks - have made investors and traders nervous.

Q. What does it mean for traders when markets are volatile?

A. It is important to distinguish ‘traders’ from ‘investors’. Traders often look to benefit from price moves over the short term while an investor’s portfolio is generally held for the long haul. A trader can thrive on the opportunities provided by volatility and the larger intraday moves, while a longer-term investor might be more likely to sit on the sidelines waiting for calmer waters.

JASON HUGHES, Head of Singapore Office

Q. What is the best approach to trading at times like this? 

A. While some may find volatility intimidating, many find it attractive, and recognise the profit opportunity it presents, provided they simply limit the risk of losses. They may start trading markets they hadn’t previously considered, using a platform like CMC’s to seamlessly access over 10,000 markets. Of course, the usual rules of trading apply: sticking to your chosen trading strategy, a solid and decisive approach to risk management, identifying both entry and exits to trades, and not over leveraging.

Q. How can traders limit their risk of losses when markets are so volatile?

A. The simplest mechanism is a stop loss order, which limits your potential losses should a market move against you. Once entered in our platform these are automated; traders don’t watch the market all day and night. Stop losses provide the peace of mind that should a price sharply move against you, your position will be closed, limiting your losses. Particularly important when markets are volatile, Guaranteed Stop Loss Orders (GSLOs) are the most secure of these, as they provide a 100% guarantee that your chosen price level is achieved, with zero risk of a worse price on execution. Using such orders incurs a small cost, which can be considered comparable to an insurance premium. Unlike an insurance premium, however, with CMC Markets half of this cost is refunded if the GSLO isn’t utilised.

Equally, should prices move sharply in your favour, you can set automated orders to close your position and realise your desired profit level. Hence, if the price should swing against you at a later time, you’ve already closed your position and taken the profit you were aiming for.

CMC Markets has an unrivalled, award-winning platform that provides stability even through turbulent market conditions. For more information, please visit www.cmcmarkets.com.sg

 
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CMC Markets is a leading global provider of Contracts For Difference (CFDs) and Foreign Exchange (FX). Founded in 1989, the company serves over 55,000 clients worldwide. With 14 offices around the world - in major markets such Australia, United Kingdom, Germany and Spain – CMC Markets have been active in Singapore from their Raffles Place office since 2007.

Committed to raising industry standards through innovation in the way people invest in financial markets, CMC Markets offers a wide range of global CFD products, such as Shares, Forex, Commodities, Indices, Treasuries and Forwards CFD.