ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Stock Market Volatility

Updated on April 4, 2018
jackclee lm profile image

Jack is currently a volunteer at the Westchester County Archives. Jack has worked at IBM for over 28 years.

Introduction

In the first quarter of 2018, we saw the Dow Jones index went through a rollercoaster of ups and downs and in some cases by a large margin. This is called volatility and the higher the volitility, the more intense investors feel. This is a contrast to just a year ago when the market was on a steady rise reaching a peak of 26,000.

- Apr. 2018

Background

The stock market is a primary investment vehicle for most people. We invest for our retirement and our savings. We participate either through our work’s 401K plans or through our individual IRA accounts or our investment trade accounts.

In recent quarter, the market has gone through a period of uncertainty. Enhanced by the electronic trading environment, it is behaving very erratically and unnerving. It could be up 400 points one day and down 700 another or vice versa. To the outsider, it seems irrational. Why is this happening?

My opinion is that partly it is a form of manipulation by some fund managers and partly because of the current trading environment. The speed with which trades are conducted in seconds and with automated trading by “intelligent sustems” created this atomosphere of volatility.

The question is what should an average investor do under such conditions? and how can the industry or the SEC get a handle on this problem so that small investors are not taken advantage of.

What To Do?

As a small investor, it is always good to be diversified. The broadest diversity of investing is in the index funds such as SPY. When the market makes these girations, it is best not to trade at all. Just sit and wait and watch what happens. Economics and economies goes in cycles. There is going to be an up cycle folowed by a down cycle. The problem is, no one can predict when these cycles come and go. As it should be. If someone does have a crystal ball and can see the future, then this whole system will break down.

Another way an investor can act is to use some hedging strategy to offset some of the losses. This requires some timing and knowledge. By trading in the Index funds and its complimentary short, you can minimize your losses and perhaps even profit from the volatility. Read my article on the details of this strategy in the link below.

What The SEC Should Do?

I don’t have any expertise in this specific arena. However, I have some experience watching the market and understand about transaction systems in general. My believe is that the reason we are seeing the volatility presently is due to the speed of trading. That is to say, the swings up and down in the market, especially during a trading day, is related to the fact trades are conducted via computers. Not only that, they are being executed based on some predetermined algorithm. When A and B happens, then C is bought or sold... These type of algorithm are coded into a trading system such that it can react instantly when something unusual happens. It is good in some respects but can be dangerous in other respect. For example, if someone knows enough about the algorithm, they can “game“ the system through manipulations. Assuming they have the capital behind them and certainly, some large investment houses do. They can manipulate a stock or a segment of the market and cause a trading frenzy while at the same time they can make a hefty profit.

What also allows this to happen is the short trading. That is allowing people to gamble by betting on a company’s stock going down instead of up. This is problematic on many levels. The whole concept of investing has been undermined by this process. Instead of investing in a company hoping it will grow and make money, in some cases, we are betting against a company by saying we hope this company fails so they can make a profit.

The solution is simple and clear. The SEC should limit the extend of program trading and it should disallow short trading. Both of these actions will reduce the volatility by a large amount.

Summary

In this time of uncertainty, the best advice is to stay calm and collected and don’t make any big moves. Take a wait and see attitude and see what happens. It will prevent you from making a big mistake.

© 2018 Jack Lee

Comments

    0 of 8192 characters used
    Post Comment

    • breakfastpop profile image

      breakfastpop 

      7 months ago

      Thanks, I needed that.....

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)