How to take advantage of market volatility in 2020

Giles Coghlan, Chief Currency Analyst, HYCM

On 3rd January 2020, the US launched a targeted military strike in Iraq which resulted in the death of Qasem Soleimani – an Iranian major general.

In the immediate aftermath of this attack, there were fears mounting that the instability could escalate into a full blown conflict between the US and Iran. In response, the global price of commodities like gold and oil rose notably, with investors rallying to safe haven assets as a means of protecting their capital amidst a volatile trading environment.

It was a prominent example of the knock-on effect major political events can have on financial markets.

Cause and effect

While tensions between the US and Iran have since receded, geopolitical uncertainty remains high. And this uncertainty doesn’t just stem from the Middle East; on 31^st January, the UK is scheduled to leave the European Union, signalling the beginning of a complex political and economic process, the likes of which have not been seen in the 21^st Century. Then, of course, we cannot overlook the ongoing trade war between the US and China, nor the US Presidential election that will gather pace throughout the year.

So, what is 2020 likely to mean for the financial markets? While there is no clear answer to this question, it could be argued that safe haven assets may prove a popular destination for investors and traders.

As we saw in the opening weeks of 2020, hard assets typically rise in popularity when political and economic events trigger market volatility. Precious metals like gold and silver, as well as raw assets like copper, aluminium and oil could see increased interest from investors and traders alike over the coming 12 months.

That being said, there are no absolute certainties when it comes to predicting how the financial markets will react to particular events. That is why it’s particularly important for all investors and traders to monitor markets closely and identify how certain asset prices react when faced with a particular set of circumstances.

There is no return without risk

 One thing we can say with far greater certainty is that 2020 will not be short of twists, turns and new opportunities. A combination of scheduled and unforeseen events will play a profound role in shaping the prices of different assets, which is why investors and traders need to establish strategies that balances their goals, the risks they are willing to take and the amount of capital they are prepared to invest.

Above all else, it is advisable to avoiding making trades based on ‘gut instinct’ or as an immediate reaction to something; always take time to consider trading decisions. Keeping level-headed is vital to any effective investment strategy, which is why planning and setting parameters is of paramount importance.

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Giles Coghlan is Chief Currency Analyst at HYCM – an online provider of forex and Contracts for Difference (CFDs) trading services for both retail and institutional traders. HYCM is regulated by the internationally recognized financial regulator FCA. HYCM is backed by the Henyep Capital Markets Group established in 1977 with investments in property, financial services, charity, and education. The Group via its relevant subsidiaries have representations in Hong Kong, United Kingdom, Dubai, and Cyprus.

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