How Financial Traders Are Evolving to Tackle Volatile Markets

LONDON, January 4, 2012 /PRNewswire/ --

During volatile markets traders can get spooked and begin to question their methods. Yet, City Index explains how financial spread bettors and traders are changing tactics with tighter risk management and other short term strategies to make the best of the volatility.

From European debt crises to Hurricane Irene, the recent glut of economic and natural disasters has caused extreme financial volatility across the world. But how have the conditions of the markets changed the actions of those who trade within them?

Joshua Raymond, Chief Market Strategist at City Index, believes the dramatic swings in prices have forced traders to remain on their toes when it comes to managing their positions: "We've seen the typical length of time that spread bettors leave their trades open shorten dramatically, as the high volatility means that profit or loss targets are reached more quickly than usual."

In addition, it would appear that some traders have evolved their styles to take advantage of the shorter-term opportunities afforded by such a high level of volatility. "Spread bettors have shown more attributes to pick up a smaller movement of prices, whereas in calmer times they may have waited for a longer and bigger move."

While emotion has been known to influence decisions during highly volatile trading, the recent changes in trader behaviour are a result of tighter risk management. By setting tighter spreads between the entry and exit levels of their trades, spread bettors are being more cautious and selective.

It is important to remember that in volatile times, losses are likely to be big. This is why traders should take time to determine the level of risk that is acceptable for the trader both psychologically and financially before placing any trades.

One way to deal with volatility is to avoid it altogether. This means staying invested and not paying attention to the short term fluctuations. Sometimes this can be harder than it sounds. Watching your portfolio take a 50% hit in a bear market is more than many can take. 

While it is possible to hedge your portfolio using CFD trading to offset these short term losses, investors need to be aware of the potential risks during times of volatility. Choosing to stay invested can be a great option if you are confident in your strategy. But before trading during volatility, it is equally important to be aware of how the market conditions will affect your trade.

It also helps a trader to know what is causing the current spate of volatility in the markets in order to be prepared for the unexpected. Often volatility can be sparked by economic events, which allows traders to accommodate their strategy to the market environment

Meanwhile, mobile trading has proven to be a popular way for traders to keep a close eye on their open positions in real-time, wherever they are. This helps to ensure that profits and losses can be managed quickly and efficiently during fast paced market fluctuations.

Learn more about spread betting in volatile markets by visiting: http://www.cityindex.co.uk/spread-betting/ at City Index.

Spread betting and CFD trading are leveraged products which can result in losses greater than your initial deposit. Ensure you fully understand the risks.

About City Index:

Today more and more individual traders are discovering the benefits of derivatives, and many of them are discovering them through a City Index trading platform.

As a group, we transact in excess of 1.5 million trades every month for individuals in over 50 countries worldwide. We provide access to a wide range of instruments including margined foreign exchange, CFDs and, in the UK, spread betting.

Learn more about the markets with daily news and insights from the City Index trading floor at http://www.cityindex.co.uk/market-analysis/

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