In a volatile market, many traders usually start to question their investment strategies. Especially, for the new traders, who like to directly pull out of the market and get back once the market shows the safe signal.
The truth about the volatile market will always happen due to the nature of the market that always fluctuates. Commonly, investors have a single solid strategy in this market. Yet, for long-term investors, they need to understand the ways to invest during the volatile market.
Defining Volatile Market
It is, basically, a market situation, where the security or asset prices significantly fall or rise in a short period of time. Usually, it is measured by the standard deviation of the return on investment (ROI).
With the standard deviation, we will directly consider every expected variation or deviation that may. During this situation, there are wide price fluctuations and heavy trading within the market.
Many people believe that this market situation comes from the release of company news, a popular initial public offering (IPO) or companies’ unexpected earnings results. While some others believe that day traders, institutional investors, and short-sellers are the main cause of volatile market.
The Effect of Volatility on Trading
If you are one of the investors who use the help of online brokers, then you need to know that during this situation, most companies apply a special measure to decrease the potential risks.
There are various ways that traders transact during this volatile prices and high volume. But, here are various effect that you need to be aware of:
Delays
The high volumes in trading always cost delays on the execution. Besides, that volume may also make the trades happen at significantly different prices.
Digital Mayhem
The limitation within the system capacity may result in difficulties for traders to make the transaction. Other than that, traders may also have difficulties to assess their account. Thus, many brokers offer alternatives like phone trades.
Incorrect Quotes
During this situation, real-time quotes can be far behind the real price that happens in the market.
The Order Types
Your type of orders is essential for your trading performance within the market. A market order will always be there, yet due to the volatility, you may still get surprised by the price you get.
Other than that, the limit order will also be in the market.
