High volatility creates opportunity for risk-resistant investors

stock market ormeThe unpredictable Coronavirus and the proceedings of Saudi Arabia, which dramatically decreased global oil prices are the triggers of the sales fluctuations in the stock market

Following the COVID-19 uncertainties, although high volatility is a disaster for conservative investors, it also offers opportunities for those traders whose risk-taking limit is at significantly higher levels.

Gulf Brokers have selected several examples of how profits could have been earned based on decline.

Tesla belonged to the losers of February after record-breaking profits at the beginning of year. Those, who expected this price development, could have earned more than 10 per cent of their investment in a single day even without using the leverage by an activity known as short-selling, speculating on price decrease. As an example, if anyone traded the stocks on 5 February 2020, the trader would sell borrowed stocks at price point of US$823 and later bought the same stocks for US$730 and that would mean 11.3 per cent profit (US$113) when using US$1,000 investment.

The trader could find a suitable target in commodities instruments in the same way, for example, the closely watched gold. If he went short, invested US$1,000 when the price of gold was US$1,646, and then bought the same number of contracts when gold was at US$1,568, it would mean a 4.74 per cent (US$47.4) profit.

What is the essence, when a trader goes short and speculates on price decrease?

The position is opened by borrowing such financial instrument (from his broker or dealer), at which the investor considers the price decrease. The investor then sells the borrowed instruments to the buyers willing to pay the market price. When the borrowed instruments must be returned, a trader buys them back in the market – and if the price really lowered, the trader gains profit from the trade.

The resulting profit – or loss – can be multiplied, for example, by using a contract for difference (CFD) investment instrument that operates on the principle of a leverage, thus by adding external funds to your own ones. This can result in higher profits, but also deeper losses.

Alain Charles Publishing, University House, 11-13 Lower Grosvenor Place, London, SW1W 0EX, UK
T: +44 20 7834 7676, F: +44 20 7973 0076, W: www.alaincharles.com

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