Saturday, July 13, 2024

VIX: How You Can Profit From Volatility In The Markets

As current economic and political tensions rise, many traders are choosing to take advantage of market turbulence by trading the Volatility Index (VIX). This is a less common instrument among both beginner and advanced traders alike but can provide high-quality trading opportunities. YLD FX breaks down the reasons how you can take advantage by trading the VIX.

Firstly, one of the advantages are the low margin requirements to place a position on the Volatility Index (VIX). This allows traders the versatility to trade exactly how they want. It means that no matter the size of your trading account, you can capture explosive moves in the financial markets, which you might not be able to take advantage of via other instruments. If you find an edge in the market you can allocate part of your available capital to VIX trading, especially when the markets are uncertain, like with what we are seeing at the moment. This leads us on to diversification.

Diversification is an extremely important part of any trader’s development. At YLD FX, we believe understanding more than one uncorrelated instrument can be a great way for a trader to take advantage of many different opportunities in the markets. This can be particularly so when the markets are in freefall, making it particularly risky to frame trading setups. The VIX on the other hand is a great way to trade a market that doesn’t move in the same way as a currency pair or commodity. You may have opinions of where the market could be headed next, you can only use the VIX as an indication of expected volatility and trade of these levels with low-risk entries. This gives the potential for traders to hold these trades without incurring overnight holding fees.

This brings us onto the final reason why you may want to be trading the VIX is due to the fact that there are no overnight holding fees when trading the VIX with YLD FX. As opposed to the majority of other instruments, such as FX and Indices holding trades overnight will incur a rollover fee/swap fee. Although, this cannot be avoided in these instruments, they can be frustrating when they eat away at your profit. The overnight holding fees can vary based on your position size and trade duration. However, with the VIX, you don’t have the issue. It allows you to place a trade, and not worry about fees accumulating the longer you hold it. Therefore, you are able to trade exactly the way you want and allow the trade to pan out in your favour without the worry of swap fees accumulating each night you hold the trade.

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