Markets move on volatility, which is a key factor and measurable attribute utilized by many traders and brokers. As a central feature of many trading strategies, many brokers and individuals orient volatility to the Chicago Board Options Exchange (CBOE) Volatility Index (VIX), for a better snapshot on how dynamic market conditions are at a given interval.
Presently, the VIX measures the market’s expectations of near-term volatility conveyed through US’ S&P 500 Index option prices. In terms of methodology, the index operates as a mean-reverting indicator, while the VIX trades on a scale of 1-100, where 20 is considered the historical average. VIX readings below this level typically point to below-normal volatility in the market, whereas readings above 20 signal higher volatility.
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easyMarkets has offered a new contract-for-difference (CFD) on the CBOE Volatility Index, helping market participants trade volatility as an asset. More specifically, traders will be able to gain direct exposure to the hyper dynamic index, with the CFD on the CBOE Volatility Index being offered under the ticker symbol Fear (VXX) on easyMarkets’ platform.
The availability of such a CFD is helpful for those who wish to profit from heightened levels of volatility across US markets – having just endured one of the most volatile trading days in recent years with the unexpected electoral victory of Donald Trump, many investors prefer not to be so helpless or reactive against such market forces.
Historically speaking, the CBOE Volatility Index trades in the opposite direction of the S&P 500 about 75-80% of the time, meaning there is a level of risk inherent with such trading. The draw of the new CFD however will potentially allow traders to profit on faltering market conditions.