3 Tips When Trading in the Midst of the Current US-China Trade War
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If you’ve been looking at the happenings around the world and are absolutely confused as to what is going on, you are probably not alone. Even though the past few weeks have been relatively quiet on the trade war front in comparison to previous months, we still have a bubbling cauldron of civil unrest in Hong Kong not too far away, and an impending UK election that is bound to shake things up, to put it mildly.
Needless to say, these globally significant events and more will have an impact on markets, as risk, whether perceived or real, is a massive determinant of how markets move. And events like the US-China trade war are a very stark reminder of just how volatile things can get when it comes to markets reacting to global events.
What does this mean for average investors who don’t have time to spend every waking hour monitoring how markets are shifting? Should you just avoid trading altogether? Here are some tips to help you manage your money better and be smarter about your trades:
1. Make sure you pay even more attention to your risk management
Because markets can move very quickly in reaction to any decisions made, be it an increase in tariffs or even a simple announcement on earnings, it’s all the more important that you manage your risk well.
These days, with the help of technology, average investors don’t have to worry about not having the time and energy to be able to make adjustments to their trades. This is where platforms like IG add value to users by providing them with tools to ensure that they get the most out of their trading activity.
One of the most basic tools that anyone wanting to trade in a volatile environment should be using is to set up trading alerts. IG’s alert system not only allows you to be notified even when you’re not logged into the platform, but you can also build alerts based on popular technical indicators, benefitting from the collective wisdom to build your trades. You can create instant buy and sell price alerts on all markets, allowing you to optimise your trades without having to monitor them 24/7.
Also, you can even set up alerts for upcoming events, which, in a time with some major global events happening, can be extremely useful. IG’s economic calendar is a useful reference point to see what you’d like to be notified for, and you get macroeconomic figures as soon as they are released.
But what is one of the most useful tools (in our opinion) when it comes to really protecting your money, is IG’s Guaranteed Stops function. As we wrote about before, this function can save you a significant amount of money and distress in the event of a sudden market crash. Most platforms allow you to implement a stop level that will close your position if triggered, but a guaranteed stop ensures that you close your position at the exact stipulated level, as opposed to a level that might possibly be way below the stop level.
In situations of high volatility, such as this current trade war, this feature can be crucial in ensuring that you protect yourself from severe losses.
2. Take advantage of the downswings
While the general public sees market volatility as a bad and scary thing, it’s actually what is fundamental to trading profitability. Essentially, if markets don’t move that much, you aren’t going to make much money either. What many people may not realise is that you can make money when markets go down in the same way you make money when markets go up.
How is this done? In principle, this is known as short selling, which we explain in detail here. Essentially, you sell “borrowed” stocks at a higher price and then buy them back and return them when they are lower. However, in declining markets, this might not always be possible as the number of stocks you can short might be limited.
This is where trading a Contract for Difference (CFD) can help you to take advantage of market movements without having to purchase the actual security. Here, you are essentially trading the difference in prices, so it fundamentally works the same way.
3. Consider volatility trading
This is probably something most retail investors would not have heard of, and it is quite an interesting concept. The volatility market is essentially a market within a market, because it follows the volatility of an actual market. That’s some Inception-level trading right there. But it’s really not that complicated to understand.
The most popular volatility market is the Volatility Index (VIX), which is an index compiled by the Chicago Board Options Exchange (CBOE) to reflect the expected volatility in the US S&P 500 market. People who trade the VIX are essentially taking a perspective on how volatile they think the US market is going to be.
When it comes to trading the VIX, it’s important to note that we aren’t just talking about random and unpredictable volatility here. What you are looking for to make gains from a volatile market is directional volatility, meaning to say that the market is purposefully moving in a particular direction so that overall, your profitable trades will outweigh the losses that comes with the volatility.
How can you get started?
As the world’s number 1* CFD trading platform, IG has a well established trading platform that is used by both seasoned and beginner investors alike. Like we mentioned earlier, IG provides risk management tools that allow you to manage the swings that comes from largely uncertain geopolitical and financial events, which you can read our article about here.
What are your thoughts on trading at this period of time? Share them with us here!
The information in this article is meant for informational purposes only and should not be relied upon as financial advice. Users may wish to approach a financial advisor before relying on any advice provided by the website to make any decision to buy, sell or hold any investment product.