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Author: bmotrader   |   Latest post: Thu, 12 May 2022, 6:02 AM

 

The Stock Market Is Due For An Upside Ahead

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On February 24, 2022, following Russia's invasion of Ukraine, the global stock market experienced a dramatic fall. However, just hours later, stocks would stage an impressive recovery, stressing how volatile the stock market can be. However, there are several reasons why it is believed that stocks are probably not going to fall below the value experienced during the early hours of the Russian invasion.

Indeed, some even believe that the stock market is due for a rise before the end of the year. However, certain questions are being asked regularly by concerned investors: what can trigger the rise of the stock market? How does leveraged trading work with this upside market condition? This article will answer these questions and more. So, keep on reading.

What is stock market volatility?

Stock market volatility represents a measure of how much stock prices can rise and fall markedly within a specific period. Simply put, volatility measures the level of risks and this enables investors to predict the future fluctuations that may happen. It must be added that by adopting the right investment strategies, investing in the stock market can produce favorable results, despite the obvious risks that are associated with it.

Interestingly, extreme risk is even associated with day trading. This form of trading requires buying and selling of stocks, depending on price fluctuations.

Trading With Leverage

It is safe to affirm that most investors that trade stocks, as well as other securities, every day, make use of their funds. If they plan on acquiring stocks, they must have sufficient funds in their accounts to purchase and pay for those shares. A major downside of investing only with cash at hand is the restriction your gains have due to your financial resources. To boost the amount of profit they can make, investors sometimes turn to leverage trading. What is leverage trading?

Sometimes, professional traders borrow funds for investment in order to increase their purchasing or selling power significantly. This process is called leverage trading. As the potential gain - which comes with trading with leverage - increases, so too is the risk.

How Does Leverage Trading Work?

As mentioned earlier, experienced investors borrow funds to purchase stocks they could not afford when paying with the money at hand. It is extremely risky. However, if you are aware of the risks that are associated with leverage trading, then it is not a bad strategy to try out.

Take, for instance, you have $30,000 in your account, and you wish to make an investment in a company that trades at $100 per share. What this means is that you can only purchase 300 shares as an investment. If, over time, the share prices increase to $150. This implies that you make a gain of $15,000 or 50%.

However, if you borrow $90,000 from your broker, this significantly boosts your purchasing power. In this case, you can buy 1200 shares. Again, for a 50% increase in share price (that is, $150), you make a gain of $60,000 or 200% of the cash invested.

On the other hand, if the price drops by 50% to $50 per share, you would owe the broker money even if you sell all your shares. This explains how risky it is.

Yet, it is exactly the strategy adopted by many experts and it has increased the volume of trade that is being carried out daily by traders across the globe!

Furthermore, there are certain reasons why the stock market might experience a boost before the end of the year:

Containment of COVID-19 in China

The massive contraction of COVID-19 in China has initiated lockdown protocols across the country, reducing economic activities in the process. China has the second-largest economy in the world. When stricter financial conditions reduce demand, this slows down inflation, which would otherwise result in lower returns on the stock market.

Russia's invasion of Ukraine is not without consequences

The US policy made in response to the ongoing war between Russia and Ukraine has led to an increase in the price of gasoline. This has produced a direct impact on consumers. As oil demand reduces, more money is spent on energy, raising profit margins and boosting the stock market.

Conclusion

Even though the stock market might have suffered in the wake of the Russia-Ukraine war, its high level of volatility ensures that it will not stay low for long. Going by the reasons stated above, a rise in the stock market is surely a safe bet!

 

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