Stock trading had been a popular activity over the past few months. Retail brokerage houses announced record new trading accounts opened and people had benefited from one of the steepest and fastest stock market recoveries in history. However, all of this happened while taking exaggerated risks, which could not be beneficial for one’s performance in the long run. A broad debate could arise on whether stocks are overvalued or not, but in the meantime, we would like to talk about why retail CFD traders should use volatility contracts.
Professional traders are aware the markets can go up in a straight line, so after an impulsive move, they know valuations could pull back. The problem is if they take profits, or keep the position opened, expecting more gains in the near term. In case the position remains open, profits are subject to downside risks. As a result, they can buy CFDs on the VIX and if the market starts to head south, their position will lose profits, but the VIX contracts will balance the overall situation.
Reducing downside risks
Given the high uncertainty we have to face, it is absolutely critical to use ways to reduce downside risks. More aggressive traders can use VIX CFD contracts to profit from falling markets, taking advantage when the majority of market participants are losing money. At any point, stock markets can start selling of rising COVID-19 cases, political events, or other impactful occurrences. We are not able to anticipate all of them, but the best we can do is use tools (like VIX CFDs) to protect ourselves. The unexpected event is bound to take place sooner or later and those who are long the stock market will have to suffer.
Balancing market exposure
Although it would be like a hedge fund balancing risk, trading VIX contracts will broaden your market exposure. Everybody is long on the stock market and when something bad happens in combination with leveraged trading, they end up blowing up trading accounts. We should already know that CFD trading comes with risks and in combination with improper trading rules, it would be impossible to achieve trading consistency. VIX contracts can help you reach that steady uprising profitability, by having a cover against unexpected events. Are you already trading CFDs on the VIX? Share us some of your thoughts on how this approach helped you avoid some massive losses in the past, so other people interested will be able to see some actual examples.