Until a couple of years ago most people would have been forgiven for thinking that the stock market was going to keep on rising forever, particularly if they listened too much to the media. As we head into the second decade of the new millennia, there aren’t many people out there who aren’t aware that the markets go down just as readily as they go up.
At the moment they’re doing both in equal measures. Uncertainty around sovereign debts and the underlying stability of the major world economies has meant that in recent months the major stock markets have gone through an unusually severe period of volatility.
For those who have investments in the market, this is a worrying time. The spectre of a double dip recession won’t go away, and it’s difficult to move from current positions to safer ones because there are very few that are safe, and those few are already prohibitively expensive.
So what can you do to protect your assets? One idea is to open a spread betting account. Spread betting is an indirect way of trading in the market and is often used by private investors to make sure that whatever the market does, their money remains safe.
This works by trading for the market to fall, so that you make a profit from the falling market that matches the value that you are losing by the same drop in your assets. Working this out can be quite difficult and it’s not an exact science, but, if you have £10,000 shares spread across the FTSE and they all drop by 3 points, to make up that value, you simply need to trade on the market to fall, and measure the size of your position to match up to your exposure.
Unfortunately, this can also cancel out any gains that you make if the market rises, so it’s generally only in times of volatility that you want to spread bet to cover your losses. That way, whilst you may not make profits, you won’t make losses, but your position will be protected throughout the period of volatility, no matter how extended it may be.