Current Market Environment – How to Balance Risks and Opportunities

Current Market Environment – What’s Happening Right Now

A recent report by Pacific Investment Management Company (PIMCO) concluded that the current market environment is stable but not secure. In the United States, the market is currently in an all-time high position while Europe is coming to terms with the Brexit effects. The cable has had an impressive rally in the past few weeks. Asia is experiencing a state of stagnation with stability. The secular report by PIMCO also concluded that security is a key concern among the investors. One benefit about being a trader is that you can benefit from an upward or downward market movement. In a bear market, you benefit by taking short positions while in a bull market, you benefit by taking long positions.

Current Market Environment – A Big Amount of Risks

The world is now exposed to a number of risks. First, the slowing Chinese economy has had significant implications to the market participants. As one of the biggest economies in the world, China is the biggest supplier and consumer of goods. If the country slows down, the effects are that it will affect other countries which deal with it. Second, there is the threat of terror. ISIS is on the rise having captured some of the key strategic places in the Middle East. Terror attacks have been on the rise even in countries that have been perceived to be safe havens. Last week’s attack in France and the attempted coup in Turkey are a testament to this. In the United States, race issues are on the rise with white cops being in conflict with black people. Race-centered organizations such as the Ku Klux Klan and Black Lives Matter have emerged. To date, tens of people have died and protests are being held on a daily basis presenting risks to a country that has been a haven for democracy. The coming general election has also presented Americans with another risk with the two presidential hopefuls being unpopular.

#1 – Fixed Income

As a trader, one thing you need to do is to diversify your investment or trading strategies. As I have mentioned in some of my previous articles, trading is a risky business. You can make and lose money within a short duration of time. Legendary traders have lost money in the past and so can you. I have lost thousands of dollars too. Therefore, to stay safe during such times, diversifying to less risky assets will help you a great deal. One way of doing this is investing in fixed income. Fixed Income is a strategy that involves buying various less risky assets at the same time. These assets could include convertible debts, bonds, and preferential shares. You can also buy an ETF, an indexed fund, or a mutual fund. The benefit of getting into fixed income as a trader is that it will help you diversify risks and capture opportunities. However, remember that the returns in such a fund are relatively small.

#2 – Find the safe havens

In your trading platform, there are thousands of assets you can trade with. In currencies, EUR/USD is a very common pair to trade with because of its liquid nature. If you are a EUR/USD trader, you need can do a few things to balance this risk. One strategy I have found to be quite useful is correlation analysis which helps in hedging. In correlation, you look at a two pairs and conduct a correlation analysis to see how they move. As you will find out, some currencies are linearly correlated with one another while others are not. To hedge your trades, you simply buy and sell the two pairs combined. If the thesis is correct, then your profit will be the differential of the two.

Current Market Environment – Useful Links

  • Be updated on the Current Market Environment on American Funds
  • Read the definition of Market Environment on BusinessDictionary