How to Use Volatility Protection in Trading Strategy?


While the current market situation is relatively benign from the point of view of volatility in classes with relatively more mature assets. With the Volatility Index VIX at historical lows. Volatility will remain one of the factors for investors and traders to consider. Many investors are looking for products that smooth volatility in investment holdings. And there are those who seek volatility trading, especially day traders to take intraday scalp.

This ultimately boils down to an investor’s risk profile and, the higher an investor is at risk. The greater the desire to protect against short-term losses once the volatility wakes up from its deep slumber.

Some investors have forgotten the days when the more mature asset classes moved in the same trend in recent weeks that we saw recently. But on a longer-term basis it is call the norm. Directional trades are certainly rewarding unless they change direction. And when leveraged, profits can evaporate more quickly than they were making.

What is the Volatility Security Strategy?

While a diversified investment portfolio may provide some degree of protection against volatility. There are other tools and products available to investors and traders to avoid riding the rollercoaster that many are and will experience repeatedly during the investment cycle.

The downside to volatility protection is low returns. Whether it is through a diversified portfolio or by incorporating alternative strategies. Even with volatility protection strategies able to take a turn in periods of extreme market stress. However, the fact is that the decline will be significantly more severe for any asset classes than for a directly focused unsecured investment portfolio.

Volatility Protection Tools

Along with the volatility tools within the trading order option, many tools are available to protect against volatility. While some trading platforms also provide trading settings to provide further support to soften the adverse effects of volatility on an individual’s positions.

Limit of Maximum Price Reduction on the Market and Stopp Order:

Able to enter the market with limited risk, while removing any limit for upward gains. Traders are able to predetermine the maximum allowable slippage from 1 to 1,000 points per account. When a stop order is triggered or a market order is placed. A limit order is place at a price that is less favorable than the predetermine amount of digits. Negative slippages are therefore conserving, whereas positive slippages have an unlimited limit order.
Completely limit or avoid losses on pending orders falling in the price gap: Protects investors from immediate losses that can stem from a pending order with a pre-determined stop-loss level. Both of which are the same. There are triggers on the tick. If those stop-losses or take-profits are triggered at the same price tick, then pending orders will be automatically canceled.

Partial execution of limit orders:

Fill in on large orders by enabling partial orders and allowing your orders to be filled in part. It is particularly useful in less liquid markets. When there is no real movement in the market, avoid order activation due to outbreaks.

Market Execution of Limit Orders:

Used to avoid situations where a limit order is reached on a price order and is not executed due to lack of liquidity beyond the level.

Activation of stop orders using inverted quotes:

Used to avoid activation of stop orders due to wide spread during economic news releases and other volatile market conditions, which may not result in a real change of price level.

Cancellation of pending orders at price intervals:

The above-mentioned volatility protection tools are available with Admiral Markets, which provides a platform for trading cryptocurrencies, foreign currency currency pairs, commodities, indices, shares and bonds through CFD.

Some traders will argue with the need for proper volatility protection when trading cryptocurrency CFDs or any other volatile instrument with daily movements of up to 10–20%, while more mature asset classes tend to be outside tight conditions outside of extreme market conditions. Let’s go inside.

Benefits of volatility protection

Leverage for the use of volatility protection, whether through a mixed portfolio to curb volatility or through the use of volatility protection instruments, when investing in more volatile asset classes or to increase potential earnings from intraday or long term Is important when using. Positions.

Leveraged trading can eventually lead to the loss of invested capital and possibly a trader should look to capture margins and positions in the event of a misplaced market. Appropriate volatility management certainly avoids scenarios in which traders may expect a particular situation to be correct to reduce losses.

Capital protection should be a top priority for any investor or trader. After all, without starting capital, there are no trades and, with no traders, there is no return on your investment.

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