During times of high volatility, many investors display a proclivity to embrace relatively short-term positions as opposed to medium-term assets. There are many times when such an approach makes a great deal of sense, for this strategy can offset some of the risk associated with a bearish or unpredictable marketplace. Countdowns offer another benefit due to the fact that they are associated with fixed odds and a specific settlement price above or below the current value. Most of these positions can be executed in time frames ranging from a mere 30 seconds to one hour. Is countdown trading the best way to adapt to the looming Brexit and are there any other alternatives?
The Fundamental Benefits of Short-Duration Countdown Trades
We have already pointed out that short-term positions tend to be able to take advantage of a volatile marketplace. Thus, risk-averse investors could find this the most appealing factor. As amenable entrance levels are provided, those on a limited budget can likewise benefit without becoming overexposed to a losing trade. Finally, multiple positions can be executed within a relatively short period of time and the largest online brokers provide dozens of different products to choose from.
The Potential Negatives During the Brexit
Although the benefits of countdown trading are clear, we now need to apply these very same principles to the current (and projected) climate associated with the Brexit. Countdown trades are particularly advantageous when there is a considerable amount of liquidity flowing through a certain market sector. To put this another way, it is much easier to turn a profit when prices are in constant flux. This could be a potential “sticking point” in regards to the exodus of the United Kingdom from the European Union.
Many investors are somewhat worried, as it is undeniable that we are now entering into uncharted territory. Some are likely to adopt a watch-and-wait approach as opposed to floating a significant amount of capital on the open markets. This will have a negative impact upon the state of liquidity and therefore, short-term positions might not be able to offer the yields that the investor desires. How can a trader can overcome this stumbling block?
More Than Countdowns Alone
“Know what you own, and know why you own it.”
Investing during times of instability calls for the adoption of unique approaches. When we extrapolate this observation to the current state of play in regards to the Brexit, what are the main points to consider? First and foremost, diversifying into both short- and medium-term positions is the best way to turn a profit even within a stagnant (or fearful) marketplace. In terms of countdown trading, it could be wise to take up holdings in traditionally fluid sectors such as the Forex markets. These can then be complimented with more stable positions such as precious metals or blue-chip holdings.
While trading countdowns should never be eliminated, it is important that they are combined with other assets to increase the likelihood of success. Thankfully, CMC Markets offers a number of tools which can help to capitalise upon what can only be called politically uncertain times.