Note: This is a guest post and author has shared his opinions on the subject, this by no means is a financial advise and readers should do their own research before making any financial decisions.
One of the worries all traders and investors share is what will happen the next time the market turns into a bear market.
Unfortunately, there is no fail-safe solution that will ensure that your funds are safe, but there are things you can do to maximize your chances of getting out of a bear market in one piece.
Most so-called solutions are based on damage control where you move your invested funds from a failing market to a more stable market. For example, many stock investors move their funds from stocks to gold when the stock market tumbles, and because of this, gold is considered a “safe haven” during a market crash. Others keep their funds in cash or place them in indices or bonds with the plan of reinvesting when the market turns bullish again.
The only problem with this is that you’ll lose out on profit and potentially months worth of tradeable opportunities, which is why more and more traders choose to take a more proactive approach to bear markets.
A Falling Market Still Experiences Volatility
A long-term investor is used to making a profit over longer periods of time from instruments that tend to grow rather slowly. The idea is to find a stock or another instrument that will increase in value over several months or years. A trader, on the other hand, makes a profit from small and frequent market movements and volatility. This is why many investors start trading when the market falls.
You see, even a falling stock market will experience volatility that you can profit from and you also have the option of making a profit from short selling stocks.
Trading doesn’t have to be as difficult or scary as many people assume and if you already know how to analyze the stock market, you’re halfway there. In our opinion, the best way to trade on a falling stock market is to use CFDs. A CFD or a Contract for Difference is a derivative that allows you to trade on underlying assets regardless of which way they are moving. Also, by using leverage (an essential part of CFD trading) you can benefit from even the smallest market movements.
Finding a Good Broker
If CFD trading sounds like something you want to use to protect yourself when the next bear market hits, you need to start by finding a broker that you can rely on. Today there are hundreds of available brokers that you can use, but not all of them are good enough to be considered. However, instead of spending the time evaluating all of the available brokers that are out there, we suggest you get help and find the best CFD brokers.
Sooner or later, every bull market turns into a bear market, and you need to have a plan of what you’ll do when that happens. Many people decide to move their funds to “safer” instruments, and some try to benefit from the falling prices by short selling.
However, lately, it has become increasingly popular to combine the two solutions. By safe-keeping some of your funds in an instrument like gold while using the rest to trade CFDs, you will maximize your chances of getting through the next bear market in one piece.