Falling Markets

TradeTravelJournal.com | Falling Markets as Opportunity for the Risk-Resistant Investors | The nervousness of capital markets is culminating. The unpredictable Coronavirus and the proceedings of Saudi Arabia, which dramatically decreased global oil prices are only the triggers of the sales fluctuations in the stock market. High volatility is a disaster for conservative investors, but it also offers opportunities. Current market crashes have offered interesting opportunities for speculative transactions for those traders whose risk-taking limit is at significantly higher levels.

Gulf Brokers have selected several examples of how people could have lost big amounts of money due to a great decline of some stocks in February, but also how big profits could have been earned.

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

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 1,000 USD when the price of gold was 1,646 USD, and then bought the same number of contracts when gold was at 1,568 USD, it would mean a 4.74% (47.4 USD) profit.

What is the essence, when a trader goes short and speculates on price decrease? When an investor submits a short-sell order, 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 e.g. 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.

Syam K.P.
Chief Analyst
Gulf Brokers

Trading is risky and your entire investment may be at risk. TC’s available at https://gulfbrokers.com/