Understanding Market Volatility – Why Is It Good To Have Market Volatility?
Market volatility is mostly heard in the news particularly associated with financial calamity and Forex trading. But it has more to do with a trader’s investment portfolio. Putting all your attention on the market volatility will not lead you to anything good. Only by understanding market volatility can it help improve a trader’s portfolio.
Market Volatility – What is It?
It is the measure of differences in the asset price for a certain time. For instance, you have a savings account. This case is an asset without market volatility. A slow increase in its value is felt over days, weeks, and even months. The trajectory is proven to be smooth and the subsequent value is just predictable. Moving forward, volatility can also be seen in bond prices. The stability is there but unexpected changes can happen along the way. But if you get into the equity market, you will get to know that volatility here is a complete norm. The price of company shares is unpredictable every day.
There are also fluctuations to be considered. There are days that prices are down and there are some that are a bit up. If you own a quality stock, you can expect it to always go up and linger for some time.
The price of an asset can remain steady or become unpredictable. Most of the time, this is stated by standard deviations and can help in seeing volatility have its own way from the asset value itself. For average investors, it is important to know the type of investment that is prone to volatility.
How To Manage Market Volatility
It works by capitalizing on the price changes using rebalancing. There are two asset classes that offer the easiest way of portfolio management. For instance, you have invested in international stocks and U.S stocks. These two don’t perform similar activities at the same time and are not related to each other. The other one can perform better than the other one or they will swap positions in no time.
So if you are planning to invest half of your assets in the international stocks and the other in the U.S stocks, you’d better rebalance these two. By doing so, you can gain a profit from your investment. You can rebalance either quarterly, periodically, or depending on the factors involved. Remember that the market volatility might not have a factor in your decisions about rebalancing, but it certainly has effects.
Taking Precautionary Measures Against Volatility
Throughout your life, you will most likely get hurt. Be it your relatives or friends, much more from your invested money in Forex trading because of volatility. Traders do not really like volatility, the reason why they move assets to a different account to attain their goals. What’s important is to remain cautious upon reaching your goals. Reduce the risk, as much as possible as volatility plays a huge part in it.
Market volatility is not the solution to the financial problems of the world and particularly offers a lot of downsides. It even keeps a lot of traders awake throughout the night. But then, if you invest for the right reasons, you will come to realize that you can capitalize on the volatility of the financial market.