As traders, we always want volatility, but if we’re honest, financial markets have recently been all over the place. One day, stocks are buoyant and optimistic. Next, they’re depressed and in the red. Of course, market watchers often have to navigate competing themes and narratives, ranging from central bank policy to economic data and geopolitics. But this rollercoaster of volatility and emotion has been particularly bumpy recently, with a lot of two-way price action. It’s been a market whirlwind for a couple of months since President Trump’s second stint kicked off in the White House in January.
Washington has gone hard in pushing its reset agenda on trade and security. In turn, we’ve gone from globalisation to segmentation, MAGA (Make America Great Again) to MEGA (Make Europe Great Again), tariffs on to tariffs off, exuberance to detox. The key theme around US exceptionalism has faded, with US stock markets and the US dollar particularly vulnerable. Comments that various officials in the Trump Administration are prepared to accept a slowdown—or perhaps even a recession—especially hurt riskier assets. Indeed, a recent Bank of America survey showed major investors and fund managers made their biggest-ever cut to their US equity allocations in March.
The “Magnificent Seven” technology companies have taken a hit, with many now questioning their high valuations and spending plans on AI. The standout loser has been Tesla, the EV maker owned by Elon Musk, a close ally of Donald Trump, which plunged 15% on March 10, extending a recent decline that has brought it down by half from its December peak. Of course, the broad sell-off has left certain stocks more reasonably priced, while real economy stocks are expected to underperform amid slowing growth and economic uncertainty.
The mighty US dollar, sometimes known as the King Dollar, has also lost its shine, falling by over 3% in three days at the start of March. The greenback is often considered the ballast for currency allocations, and rightfully so. It makes up 90% of all FX transactions and around 60% of global foreign exchange reserves. It is a well-known and truly global reserve currency, but as we have seen in recent weeks, wobbles are not just confined to the US stock market.
So, can you benefit from this volatile environment? Financial markets offer ways for retail traders to take advantage of yo-yoing prices.
‘Short selling’ shares (i.e. selling a share you don’t have with the expectation the price will fall and you can repurchase it later at a lower price) is one option, but it has unlimited risk if the price moves up.
Instruments that enable traders to take short-term positions and speculate on rising or falling prices without buying or selling the underlying shares become more useful than ever in these types of markets. Products such as contracts for difference (CFDs), options, inverse ETFs, and other derivatives offer these benefits, and many are easily accessible to retail traders. Like any form of trading, they all come with risks, but they also come with tools to limit the risk while maximising the upside if used correctly.
Ultimately, success in two-way markets requires a trading and investing plan, keeping up to date with news, and the ability to stay patient and disciplined. Traders who can adapt to changing market conditions and apply these strategies effectively stand to make potential profits in both rising and falling markets. That means benefiting from the waxing and waning of multiple market themes we are currently experiencing. According to JP Morgan Private Bank, since 1949, nearly half of all daily market returns have been negative. That’s market volatility and gives us all potential trading and investing opportunities if we use the right instruments.
