3 Ways to Take Advantage of A Bear Market

Global stock market volatility has made headlines in recent weeks on the back of the worldwide spread of Covid-19 (aka Corona virus) and just an apparent oil price war initiated by Saudi Arabia.  While the world is panicking and selling off stocks while loading up on hand sanitizer and toilet paper, it’s important to be able to step back and look for opportunities to profit. 

Sell offs happen due to market sentiment and fear.  Fear is caused by news and the natural human behavior of following the masses, or herd mentality.  To understand how to profit during a bear market, first stop reading the news. Only without this noise, you’ll be able to see a bigger picture of what’s happening.

Here are 3 strategies that will help you take advantage of global fear and earn during the midst of chaos:

Buy Gold– Gold is considered the world’s alternative asset to currencies, particularly the US Dollar.  Many investors will hedge the movement of the dollar with gold.  Therefore, when we see events that cause the dollar to lose value such as a stock market crash, gold will rally.

Buy JPY and CHF- Besides gold, certain currencies are also known as safe haven currencies.  Both the Japanese Yen and the Swiss Franc are known to appreciate during a bear market.  Investors sell or borrow Yen due to its low overnight interest rate in order to invest into other assets.  When there is a global sell off, these investors sell their holdings and repatriate the investments back to Yen.  Additionally, Switzerland has long been famous for its neutral standing in world politics and banking safety and secrecy laws.  Therefore, investors see the country’s currency as a safe asset to keep their funds.

Sell Stock Indices through CFDs– If you want to hedge your own stock portfolio or are looking for a way to profit during a stock market crash, look into trading CFDs.  These are derivative instruments that follow the underlying exchanges in the world.  Therefore, the price of the CFD follows what happens in the market.  The advantage to trading CFDs in a bear market is that you can easily buy or sell with no restrictions unlike the futures or equities market.  Think the Dow Jones is headed for another bad day?  Sell a Dow Jones CFD and hold it for as long or short of a time as you like.  Your broker will provide leverage which lowers the amount of margin required.

As Warren Buffett famously said, “It is wise to be fearful when others are greedy, and greedy when others are fearful.”  During times of uncertainty, look beyond the fear and panic of the masses and find opportunity.

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