The world of trading is changing
At a time where savings rates - and pretty much all other traditional forms of consumer investment - leave little to get excited about, many are looking to online trading as way of building their wealth. But the world of trading can be daunting.
The possibility for handsome profit may be alluring, but the potential risks involved in this high-stakes game can be off-putting in equal measure, prompting experienced investors to play safe and others to avoid trading altogether.
Even the savviest of traders can struggle at times to strike the balance between risk and reward - particularly when during surges in market volatility. New risk management tools, such as AvaProtect, however, are changing the game - giving retail traders a safer way to invest by providing protection against unexpected losses.
Designed to give users peace of mind when trading, risk management tools equip users with the flexibility to take a chance in trickier market climates, allowing them to capitalise on the huge opportunities presented in such periods - while avoiding the pitfalls.
AvaProtect, for instance, allows traders to fully protect their positions for a defined period in exchange for a small fee. At the end of this period, if the protected position has dropped in value, AvaTrade fully reimburses any losses made, giving users the confidence and flexibility to try again if the market doesn't go the way they expected.
During periods of increased market volatility, such tools are particularly helpful as markets will often rise or fall unexpectedly, increasing the chance of both profiting and losing out. We need look no further than this year's global pandemic for examples of this - with currency, stock and commodity markets all reacting dramatically and unpredictably as a result of lockdown measures introduced internationally.
There were plenty of casualties. March 2020 saw the FTSE 100 plunge by almost 8%, while the DOW sunk 2,000 points - the largest intraday fall for both stock markets since the global financial crisis. At the opposite end of the spectrum, "save haven" assets, such as gold, have continued to increase in value throughout the crisis, with the precious metal already having risen by more than 19% this year, while shares in those companies positioned to benefit from the crisis are subject to significant leaps based on surges in investor confidence. Over the first full week of July 2020, for instance, shares in Alibaba jumped by 17.19% on the AvaTrade platform, netting any timely investors a strong profit.
What does this mean for traders?
Shocks will continue to surface as the world navigates the rocky road to recovery amidst concerns of a second wave of the pandemic - not to mention the potentially devastating effects this could have on markets already struggling to stabilise. This, of course, means there is still ample opportunity for traders to make profit, but determining when and where fluctuations will arise, while possible through shrewd observations and careful analysis, will continue to incorporate an element of luck.
It is here that tools like AvaProtect come into play, allowing users to follow their convictions with minimal risk. For example, someone wanting to purchase an ounce of gold - valued at around US$1,800 in July 2020 - on the presumption it would continue its climb in value, could protect their investment for 1 day for little over six dollars (see image 1). If, after the day's protection, it has in fact decreased in price, these losses can simply be refunded. In more volatile markets, where we have seen prices plunge by significant margins in the space of just a day, only to recover strongly shortly after, this tool could provide hefty damage limitation on what would otherwise be a high-risk, high-reward investment. It's a strategy that can be replicated across all markets on AvaTrade's platform - be it commodities, stocks, currencies or even cryptocurrencies.
This kind of service is revolutionising the way in which traders perceive risk, enabling them to take bolder positions and increasing their scope for profit. Certainly, by eliminating the downside risk, less experienced traders need not worry about studying complex risk management strategies, while their more seasoned counterparts can afford to follow their convictions in areas they might otherwise consider too great a gamble. Instead, users can ensure that, minus an activation fee, they stand only to gain from their investments.
This article was written by Dáire Ferguson, CEO of AvaTrade.