The Dangers of North Korea: Why Traders Should Not Be Worried – Introduction
The risks for war is increasing by day. Last week, North Korea tested a ballistic weapon over Japanese land. On Sunday, the tested a hydrogen bomb. Today, South Korea reported that the North was preparing an intercontinental ballistic missile. These are real threats. The United States have responded by threatening the country of an imminent attack if they continue with their threats.
The markets responded swiftly with the safe havens like gold and treasuries rising. Stocks worldwide fell significantly as investors exited their positions.
The North Korea situation is one of the main reasons why I have advised people to allocate most of their resources to their trading accounts. This is because of the liberty traders have. They can easily enter and exit trades depending on the situation at hand. For long-term investors, they have to hold their investments for years until they mature.
True, the North Korea situation is troubling for both investors and traders. The number of people who would die in case of such an attack is very high. It is estimated that millions of people in Seoul, Japan, and even the United States would be massive. However, from a financial standpoint, traders are poised to gain more as the problem escalates.
As you can see below, the VIX index which measures volatility in the financial markets is trending higher as the talk of war escalates. Remember, traders make more money in days of higher volatility.
Apart from volatility, as the talk of war escalates, the market is creating better opening positions of long-only traders. A good example of this is what happened last week when the Dow opened less 100 points. German’s Dax opened down more than 200 points. However, as the talk of war reduced, the two indices gained by more than 200 points each. This has been happening for the past few months where the talk of war pushes the market lower and then higher as it reduces.
Third, traders should not be worried because they are not to blame for what is happening. During the U.S election, Hillary Clinton blamed Donald Trump for celebrating the housing market collapse. Trump responded by saying that the fall created opportunities for real estate participants. They could now afford buying properties that they would not afford before the collapse. This was right because people like Trump were not to blame but they were among the key beneficiaries. In the case of a nuclear war, the traders are not to blame for using opportunities that emerge for their own benefit.
The key to trade and make money during this crisis is to always be informed of what is happening. Without such information, chances are that you will lose money. After having the information, you need to identify the assets or instruments that are safe and those that are at risk. For example, the dollar would be affected when there is a crisis while the Japanese Yen would strengthen. The major indices would be seriously affected while commodities would also be affected.
You should also look at the safe havens like gold and treasuries. In all your trades, you should ensure that you have some money in the safe havens even when the havens are not doing very well. They will always protect you in case of a major downturn. Another strategy is pairs trading where you buy and sell similar items. This will always protect you in case of a down turn and limit your losses.
The Dangers of North Korea: Why Traders Should Not Be Worried – Useful Tips:
- To find out more interesting information, please, go to MarketWatch;
- Another useful reading on USAtoday;
- Discover more on the matter on Businesslive.