Thursday 24 September 2020 11:06 amFXCM Talk

2020: The year to start trading volatility

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Craig has worked in the foreign currency and CFD trading industry for the last 10 years, and is currently the CFD Product Manager of FXCM, where he primarily oversees the suitability and expansion of the tradeable product line.

Newton’s third law dictates that for every action there is an equal and opposite reaction. 

It is a law whose logic can be seen in movements of the market. Political shocks and scandals, natural disasters and pandemics, and now even incendiary tweets, can set off jitters and tremors across all markets.

Before this summer, the same law traditionally governed the CBOE Volatility Index (VIX) -. As stocks would rise, the volatility index – also known as the ‘fear index’ or ‘fear gauge’ – would fall. Likewise, if stocks fell, the VIX would rise. After all, stock prices increasing generally suggests confidence while falling prices suggest the opposite. 

Enter 2020. Expert analysts, bankers, and retail investors have all been faced with a flurry of mixed signals coming from the markets during this period of unprecedented volatility. 

This year, the U.S. stock market saw the biggest August trading rally since 1986. The S&P 500 is closing at record highs at the end of August and the start of September, up 56 per cent from the COVID-19 lows seen in March. However, well over half the companies within the S&P have not seen a meaningful recovery or have posted losses during the same period. 

Subsequently the VIX is rising simultaneously with the stock index. As stocks are rising, investors are still incredibly nervous.  So how and where can the average retail trader, enter the market and start trading when they’re in such a state, without the fear of potentially being caught in the middle of unprecedented market drops.

Making the most of volatility with VOLX

It’s not surprising to see the combination of a global lockdown and record-breaking volatility leading to an increase of first time traders.

There are so many company shares, indices, currencies, and funds to pick from, all with their own pros and cons, risks and opportunities and while a healthy dose of choice is certainly a good thing, it can be overwhelming for new traders in today’s market.

With the markets in such a state of flux there is opportunity present and significant price movement on just about anything – including volatility itself!

Rather than trudging through years of stock market data and company performance profiles to find that one perfect share, traders can speculate on the very volatility that has dominated the markets this year. Instead of toiling through countless currency charts to find that one perfect pair, traders just need to express a view on the overall future performance of one the world’s leading stock indices. 

Such is the benefit of trading FXCM’s VOLX CFD (contract-for-difference) in 2020. In tracking the future volatility of the markets, rather than the stock prices themselves, VOLX provides investors with a further means to potentially profit directly from the unprecedented market swings of today without having to speculate on which direction the market is heading. 

Trading with security with flexibility

As we navigate our way through these uncertain times, it is essential that brokers facilitate access into markets for new and existing traders while constantly innovating easier and cheaper methods of investing.  

In trading with an instrument like CFDs, and with things as perhaps intangible as ‘investor risk sentiment’, there is no denying that these can be complex instruments for newer traders. But that is precisely why it is important to trade with a reputable and regulated broker.

While leverage can bring about large gains, it can also catch some unawares with significant losses. Investors must balance security with opportunity and are best served by brokers who recognise the importance of both, by those providing the latest trending trading instruments while simultaneously offering an appropriate leverage, in line with key regulations and protections. 

VOLX has proven itself as an effective way to diversify portfolios and manage risk – making it the ideal trading instrument for 2020 and with a minimum contract at 1/100th of the standard VIX Futures size, traders are given an affordable way to control exposure and trade with precision on an underlying instrument that has soared in popularity recently.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 

75.38 per cent of retail investor accounts lose money when trading CFDs with this provider.

You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

To learn more about FXCM, visit www.fxcm.com/uk 

FXCM is a leading provider of online foreign exchange (FX) trading, CFD trading, and related services. Founded in 1999, the company’s mission is to provide global traders with access to the world’s largest and most liquid market by offering innovative trading tools, hiring excellent trading educators, meeting strict financial standards and striving for the best online trading experience in the market. Clients have the advantage of mobile trading, one-click order execution and trading from real-time charts. In addition, FXCM offers educational courses on FX trading and provides trading tools, proprietary data and premium resources. FXCM Pro provides retail brokers, small hedge funds and emerging market banks access to wholesale execution and liquidity, while providing high and medium frequency funds access to prime brokerage services via FXCM Prime. FXCM is a Leucadia Company.

Trading Forex/CFDs on margin carries a high level of risk and may not be suitable for all investors. Leverage can work against you. The products are intended for retail, professional and eligible counterparty clients. Retail clients who maintain account(s) with Forex Capital Markets Limited (“FXCM LTD”) could sustain a total loss of deposited funds but are not subject to subsequent payment obligations beyond the deposited funds but professional clients and eligible counterparty clients could sustain losses in excess of deposits. Clients who maintain account(s) with FXCM Australia Pty. Limited (“FXCM AU”), FXCM South Africa (PTY) Ltd (“FXCM ZA”) or FXCM Markets Limited (“FXCM Markets”) could sustain losses in excess of deposits. Prior to trading any products offered by FXCM LTD, inclusive of all EU branches, FXCM AUFXCM ZA, any affiliates of aforementioned firms, or other firms within the FXCM group of companies [collectively the “FXCM Group”], carefully consider your financial situation and experience level. If you decide to trade products offered by FXCM AU (AFSL 309763), you must read and understand the Financial Services Guide, Product Disclosure Statement, and Terms of Business. Our FX and CFD prices are set by us, are not made on an Exchange and are not governed under the Financial Advisory and Intermediary Services Act. The FXCM Group may provide general commentary, which is not intended as investment advice and must not be construed as such. Seek advice from a separate financial advisor. The FXCM Group assumes no liability for errors, inaccuracies or omissions; does not warrant the accuracy, completeness of information, text, graphics, links or other items contained within these materials. Read and understand the Terms and Conditions on the FXCM Group’s websites prior to taking further action.

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