Market volatility is a term widely used in the investment world, but it is not always well understood.
In short, understanding what it means and how it affects your investment decisions can be the key to turning moments of uncertainty into opportunities.
While it may seem daunting to novice investors, it is a natural aspect of financial markets.
Therefore, this article will clearly explain what volatility is, why it happens and how you can benefit from it.
Market volatility refers to the intensity and frequency with which the prices of financial assets (such as stocks, funds, and cryptocurrencies) rise or fall over a given period of time.
When a market is considered volatile, it means that prices are changing rapidly and sharply.
Imagine that a stock, which normally goes up or down by a few cents a day, suddenly starts to vary by reais or even tens of reais in the same period. This is a clear sign of volatility.
Volatility can be measured by indicators such as the VIX index (known as the “fear index”) or by the standard deviation of an asset’s price variations.
The higher the standard deviation, the higher the volatility.
Market volatility can be caused by a number of factors, such as:
Volatility is a natural part of the financial market and should not be seen only as something negative.
Although it represents risk, it also opens up profit opportunities for investors who know how to take advantage of it.
Experienced investors see volatility as a chance to buy assets at lower prices and sell when prices recover.
Here are some strategies to take advantage of this market characteristic:
When stock prices fall due to temporary events (such as negative news), there is a chance to buy assets at reduced prices.
This strategy requires patience and the ability to assess whether the fall is temporary.
Maintaining a diversified portfolio (with stocks, real estate funds, fixed income and cryptocurrencies) can reduce the negative impacts of a period of volatility in specific sectors.
Short-term investors can benefit from volatility by buying assets low and selling them high, often within the same day or within a few days.
Futures contracts and options are instruments that allow you to protect investments against sudden fluctuations in the market.
For those who think long-term, short-term volatility is irrelevant.
By holding investments for years or decades, market fluctuations tend to stabilize, allowing for more consistent profits.
Adopting one or more of these strategies can make the difference between despairing during a downturn or seeing an opportunity for profit.
To monitor volatility and make faster decisions, people can count on great allies: financial analysis applications.
Here are some suggestions:
Market volatility is inevitable, but that doesn't mean it's bad.
On the contrary, for prepared investors, volatility is synonymous with opportunity.
So by understanding its causes, measuring its risks and adopting the right strategies, it is possible to transform moments of tension into opportunities for gain.
Furthermore, with the support of modern applications, monitoring the market and taking quick action has become easier than ever.