Volatility has become a staple in today’s financial markets. The free flow of economic data, corporate news and political developments may all reflected in the equity markets, creating a tug-of-war between the bulls and the bears. For many traders, volatility is a thing to be feared, and should be avoided at all costs. But what if we told you traders can trade volatility as an asset? Suddenly, volatility may no longer be as scary as it once appeared!
easyMarkets, a CySEC regulated broker based in Cyprus, recently launched volatility trading trough the Chicago Board Options Exchange Volatility Index (VIX), which is the primary vehicle traders use to tap into market fear or uncertainty. The VIX measures the market’s expectations of volatility over the next 30 days conveyed through S&P 500 Index option prices. The VIX trades on a scale of 1-100, where 20 is considered the historical average. This means that VIX readings below 20 are typically associated with periods of lower volatility in S&P 500 Index options prices, whereas readings above 20 signify higher-than-normal volatility.
easyMarkets offers volatility trading through a contract-for-difference (CFD) on the CBOE Volatility Index. Using the ticker symbol Fear (VXX) on easyMarkets’ MT4 trading platform, traders may easily trade volatility as an asset. This means you may trade in the direction of volatility for profit, rather than run in the opposite direction. This is a powerful concept, given that many traders have learned to avoid volatile market environments, such as the overlap between European and North American trading or high-profile economic calendar events.
Any experienced trader will tell you that this is where the opportunity lies. With the VXX, traders may now use market fear as a tool to make possible profitable trades. And because the CBOE VIX moves in the opposite direction of the S&P 500 three quarters of the time, traders will have yet another tool for analyzing the US stock market. EasyMarkets also offers CFDs indices trading, where traders have access to the very S&P 500 Index that the VXX is exposed to.
The year 2016 provided many opportunities for trading volatility. Crashing oil prices, the Brexit vote and Donald Trump’s shocking election victory all triggered significant volatility in the market. Had you traded the VXX during these periods, you could have profited from volatile movements in the market.
Although the VIX is currently trading well below its historic average, it is prone to large upswings depending on the broader economic and financial climate. This means volatility is always in play and will continue to be a feature of the market.
Looking at the economic calendar, there are many times where you might want to trade volatility. Central bank statements, governor speeches and employment, inflation and consumer spending data have all been known to move the markets in volatile ways. Traders looking to enter into the VXX may look at these high profile events first.
Looking ahead to next year, federal elections in Germany and France may also ignite volatility. Combined with ongoing developments in the United Kingdom over Brexit, 2017 will witness plenty of volatility.
easyMarkets makes volatility trading easier by offering the VXX through a CFD. CFDs are one of the fastest and cheapest ways to enter just about any financial market. It’s perhaps the perfect approach to begin volatility trading.
To learn more about CFDs trading with easyMarkets, and how you can use volatility to your advantage, visit the easyMarkets CFDs Trading page.