Stock Market Volatility: A Guide for Investors

Global stock markets are becoming more and more volatile over a couple of years now. Such European companies’ behavior is explained by many reasons: doubts in further development of the global economy, trade wars, geopolitical conflicts. Volatility is a term that some investors have not come across nor do they understand, it can at times be scary to investors.

Here in this article we will be unveiling what stock market volatility entail, causes of this volatility and finally ways through which it can be dealt with. We will also give you some ideas on how you can remain composed and focused especially when the markets are in turmoil.

What is Stock Market Volatility?

Market volatility is defined as the movement of share prices; the level of fluctuation in prices of shares. It also means that in the event of fluctuations in the market price it can either go high or low in a short span of time. This can lead to confusion as to where the market is heading next by the investors.

What Causes Stock Market Volatility?

There are a number of factors that can cause stock market volatility. Some of the most common include:

• Economic uncertainty: This is because when the investors are holding the forecast of the economy in limbo they might opt to sell their stocks and go for other cash Instruments. It has the effect of reducing the market itself.

• Trade wars: It implies that thru fluctuations in the stock market the chances of the WTO member’s experiencing more uncertainty due to trade wars are high. Tariffs also have negative effects since countries put tariffs on each other’s products thus leading to breakdown of supply chain and expensive products to customers.

• Geopolitical tensions: There is also a high likelihood of stock market fluctuations due to geopolitical conditions including, wars and terrorisms among others. In particular, when investors are anxious about security of their investments, they may tend to dispose of the stocks.

• Corporate earnings: Sometimes, companies fail to meet their investors’ expectation and this results in their earnings per share dropping. It can also result to decreased stock market as seen from the following.

• Interest rate changes: It can also cost a lot to borrow money when interest rates are hiked because it’s the Federal Reserve like Kansas City Federal Reserve bank that sets the rates. This can result in the earning of loss by the business and the lowering of the stock exchange.

How to Manage Stock Market Volatility:

There are a number of things that investors can do to manage stock market volatility. Some of these include:

• Diversify your portfolio: Another way of controlling for volatility is through diversification of share that one has in the stock market. This means having money invested in stocks, bonds as well as property among others in a process known as diversification.

• Invest for the long term: In this case, one should not be worried by short term volatility in the stock markets especially if they are in it for the long haul. Thus the market advance over the long-term.

• Stay calm and focused: And that one has to remain calm during turbulent period in the live stock market. Do not decide to withdraw your funds from the market and sell your stocks acting under the impression that the market is falling.

• Do your research: Whenever you consider to invest in a specific stock, it is advisable that you follow the basic steps of understanding a company and its line of business. This will assist you in making right decisions while trading because you will minimize cases of investing in companies likely to declare bankruptcy.

• Consider using a stop-loss order: The stop-loss order is an order that directs a broker to sell a security once it gets to a specified low price. This can assist to control your results in case of the market collapse, or if there is a need to exit the market.

Conclusion:

The fluctuation in the stock prices is common occurrences within the financial markets. There are however a number of things that investors can do in order to deal with it. This shows that by having investment diversification, long term strategy, and risk management, no storm that the market will bring will ever be able to defeat an investor.