Over the past year or so, there’s been a big focus on market volatility in both foreign currencies and the stock market. Some news reports say that volatility is making investors nervous, while others talk about opportunities it brings. What do analysts and reporters really mean when they discuss market volatility, and is it good or bad for investors?
What “Market Volatility” Really Means
In a basic sense, market volatility refers to how fast prices change in any financial market, whether that market trades stocks, bonds, foreign currency, or something else. Prices move up and down throughout the trading day, and from day to day, meaning all markets always have some volatility. Many of the same factors that cause any other up or down market movement can affect volatility, including:
- Economic performance
- Interest rates
- Inflation
- Trade wars and tariffs
- Political stability
- World news
- The global virus pandemic
Volatility is not the same as market risk. Rather, it’s an indicator of uncertainty in the market. Higher volatility can lead to more fluctuation in prices, while lower volatility usually means prices won’t move up or down as dramatically.
How to Manage Volatility
No matter what’s going on in the world, the FX market is going to have some market volatility on a daily basis. During times of crisis and uncertainty, volatility will increase. As a business owner, you want to know how to manage your exposure to risk and stay profitable.
There are several strategies for risk management available. While FX risk is an inherent part of operating your business overseas, these solutions will help you avoid FX volatility eating into your bottom line, minimize the risk on long term projects, free up capital, and maintain competitive pricing.
Hedging solutions will make your global payments more manageable and less risky, while supporting your business goals and making your life easier. Examples include:
- Multi-Currency Account – with a single account, you can
- Buy and hold foreign funds without having to open international bank accounts
- Send global payments directly from your account
- Receive foreign funds without having to convert them to US dollars before depositing
- Forward Contracts – lock in currency at today’s rate, while keeping your cash free by not paying until you need the currency
- Market Orders – lock in the rates you want in your FX trades
- Transactions are automatic and around-the-clock when the market hits your prespecified exchange rate
- Set best and/or worst-case exchange rate and let the market order do its job
- Spot Transactions – purchase and send over 130 currencies at the live exchange rate for two-day delivery for most currencies, or same or next-day delivery for selected currencies
Investors: Manage Volatility by Planning Ahead
The recent Covid-19 pandemic, global monetary policies, and economic data continue to affect volatility in the global markets. Overall, market volatility is neither good nor bad. It’s simply a data point to look at while you devise and execute your trading goals and strategies.
The best course of action isn’t to avoid market volatility altogether—rather, it’s better to formulate an FX trading strategy that’s proactive about risk management in your investments and lets you take advantage of potential market gains.
You’re busy running your international business. You don’t have time to watch the markets day and night or study advanced strategies to ensure you make the best decisions about your investments while you minimize your exposure to risk. Fortunately, you don’t have to.
By working with the FX experts at Monex, you’ll get the benefit of:
- FX expertise and insights from Bloomberg’s top-ranked currency forecaster
- Dedicated FX experts who monitor and advise on relevant market conditions
- Tailored long and short term hedging strategies for your business goals
- Digital tools, including an intuitive, innovative trading platform available 24/7
- FX trading desk with the trading power of one of the world’s leading commercial FX providers
There are many ways to invest and hedge against losses that are effective in times of high market volatility. While there will always be some risk involved any time you invest in the market, you can take steps to minimize it, protect yourself from excess risk, and benefit your business or personal bottom line. The potential for upside is worth the risk to most investors.
Ready to get started with Monex Online?
Discover HOW WE Can HELP You SEND or RECEIVE PAYMENTS
