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How Can Spread Betters Take Advantage of Market Volatility?

The concept of volatility is often misunderstood in the financial marketplace, as while it is primarily considered to be a negative phenomenon it actually plays a pivotal role in helping investors to generate a profit.

In fact, in order for anyone to make a profit as a financial market trader there must be price movement and a constant shift in the value of currencies, shares and underlying assets. The key issue is the degree to which volatility exists, and how investors strive to leverage this to their advantage.

Interestingly, the practice of spread betting offers investors an outstanding opportunity to capitalise on market volatility, particularly in a liquid space such as the foreign exchange.

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 Why is Spread Betting Such a Viable Tool in Volatile Markets? 

If you are unfamiliar with the practice of spread betting, this is a process through which investors assume a position based on whether or not they expect the price of an underlying instrument to rise or fall. In this instance, profit or loss is determined by the subsequent course that the value of the instrument takes, while traders can benefit from the fact that they are not burdened with ownership of the associated asset.

Quite aside from the fact that the unique nature of spread betting enables traders to generate profit even in a depreciating market, we can also see how volatility plays a pivotal role in optimising profit. More specifically, the constant movement of prices is crucial if traders are to ultimately make a profit, even in instances where there is negative sentiment and a genuine sense of depreciation. This is why spread betting is such a popular option among forex traders, as the natural level of volatility and market liquidity in this space establishes the practice as the best way to optimise profit and minimise risk.

The key for traders is to gauge the level of the volatility in the real-time marketplace, as this will determine their precise strategy. During times of peak volatility, for example, spread betters may benefit from opening and closing short-term positions during 24-hour periods, which is known commonly in the industry as day trading. This minimises your level of market exposure during difficult times, while empowering you to make a high number of incremental profits within a manageable time-frame.

Conversely, you may be inclined to take up longer-term positions in the market during periods of consolidation, as this creates an opportunity to leverage trends and secure more substantial profits. This is important during times when the levels of volatility decline in the financial market, as the potential to make money quickly also falls as a result. The approach that you take will also need to be more considered and focused during such times, particularly if you are to leverage trends successfully.

The Bottom Line: Using Spread Betting to Profit from Volatility

If this underlines anything, it is the fact that knowledge equates to power in the financial market. After all, it is knowledge of the marketplace that enables us to understand the true nature of volatility and price movements, and how a trading vehicle such as spread betting can be used to turn this into a competitive advantage.

Along with an appreciation of prevailing levels of volatility and a defined strategy, spread betting can help you to profit during times of difficulty and even as your chosen market depreciates in value.

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