Navigating Financial Storms: Top Assets for Trading in Times of Volatility

In recent months, the level of market volatility has surged significantly due to the impact of the coronavirus pandemic and the risks it poses to the global economy.

According to most estimates, the world could be on the brink of a depression, with the potential disappearance of many companies. However, this is not the first time market volatility has been a concern.

In 2008, the volatility was linked to the housing bubble, and in 2000, it was the dot-com bubble. In 2020, the volatility was a result of the coronavirus pandemic, which tragically claimed the lives of millions.

For long-term investors, this volatility typically has a negative impact on the performance of their assets. For example, this year, many long-term investors have suffered losses as stock values plummeted.

On the contrary, traders often perform better during volatile times. A recent Wall Street Journal article quoted the CEO of our parent company, stating that the increased volatility had exponentially boosted the company's trading volume.

This report will examine some of the best assets to trade during periods of high volatility.

CBOE Volatility Index (VIX)

The CBOE Volatility Index is one of the most well-known assets for trading in volatile markets. In a previous post, we explored its history and why many traders use it to measure or predict volatility.

During periods of high volatility, the VIX index typically experiences an upward movement, remaining significantly lower during stable times. The chart below annotates the periods in the past five years when the VIX index recorded the most substantial increases.

Safe-Haven Assets

Safe-haven assets are a refuge for investors during times of increased market volatility. These assets, known for their stability, tend to perform well when the broader financial markets experience turbulence. Notable safe-haven assets include gold, the Japanese yen, and the Swiss franc.

Gold

Gold is a renowned safe-haven asset due to its historical tendency to be uncorrelated with the overall stock market. Investors often turn to gold in times of financial uncertainty, as it typically moves inversely to the direction of the dollar.

Japanese Yen

The Japanese yen is considered a safe-haven asset, primarily because of Japan's substantial holdings of overseas assets, particularly US debt. Additionally, the Bank of Japan's prolonged engagement in unconventional policies, such as maintaining negative interest rates, contributes to the yen's status as a preferred currency for carry trades.

Swiss Franc

The Swiss franc is another currency favored during volatile times. Switzerland's stability, neutrality in geopolitical matters, and reputation as a haven for wealth preservation make the franc attractive in times of market turbulence.

US Dollar Index

The US dollar index gauges the greenback's performance against a basket of currencies, including the euro, sterling, Japanese yen, Swiss franc, Swedish krona, and the Canadian dollar. During heightened volatility, the US dollar index tends to rise sharply as the greenback is perceived as a safe-haven currency.

Crude Oil

Crude oil is a noteworthy commodity to monitor in times of volatility. Recent swings in oil prices, attributed to the price war between Saudi Arabia and Russia and concerns about demand during the coronavirus pandemic, exemplify its sensitivity to market uncertainties. Geopolitical issues in the Middle East can also contribute to oil price volatility.

Indices

Stock indices, such as the Dow Jones Industrial Average and the S&P 500, reflect overall market movements during periods of high volatility. Single stocks like Microsoft and Apple may experience sharp fluctuations, but trading indices provides a broader perspective on market dynamics. For instance, the Dow witnessed historic highs and lows in March 2020 amid the uncertainties surrounding the global pandemic.

Summary

In conclusion, as we confront the turbulent financial seas brought on by the unprecedented challenges of the coronavirus pandemic, the importance of strategic financial decision-making cannot be overstated. The echoes of past market upheavals remind us that volatility is a constant companion in the world of finance, each episode presenting its own set of challenges and opportunities.

For long-term investors, the current volatility has translated into adverse effects on asset performance, accentuating the need for a resilient and adaptive investment strategy. On the other hand, traders find themselves in a position to capitalize on heightened market dynamics, as evidenced by a surge in trading volume during these tumultuous times.

This report has underscored the significance of key assets tailored for trading in periods of high volatility. The CBOE Volatility Index (VIX) stands out as an invaluable tool, providing insights into market sentiment and aiding traders in navigating uncertain waters. Safe-haven assets, including gold, the Japanese yen, the Swiss franc, and the US Dollar Index, offer stability and refuge for investors amidst market uncertainty.

The intricate dance of crude oil prices and the movements of stock indices, such as the Dow Jones Industrial Average and the S&P 500, further emphasize the need for a comprehensive understanding of diverse assets during volatile periods. By leveraging this knowledge and strategic foresight, investors and traders can not only weather the storms of uncertainty but also identify opportunities amid the chaos.

In essence, navigating financial storms requires a multifaceted approach that combines historical insights, a deep understanding of asset dynamics, and the agility to adapt to evolving market conditions. Armed with this arsenal of knowledge, market participants can confidently chart a course toward financial resilience and success in the face of uncertainty.

About AdroFx

Established in 2018, AdroFx is known for its high technology and its ability to deliver high-quality brokerage services in more than 200 countries around the world.  AdroFx makes every effort to keep its customers satisfied and to meet all the trading needs of any trader. With the five types of trading accounts, we have all it takes to fit any traders` needs and styles. The company provides access to 115+ trading instruments, including currencies, metals, stocks, and cryptocurrencies, which make it possible to make the most out of trading on the financial markets. Considering all the above, AdroFx is the perfect variant for anyone who doesn't settle for less than the best.