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Stock markets are never stagnant. They are always moving. Sometimes this movement may be steeper than normal. In such a scenario, the stock market is said to be volatile, that is, there may be a sharp rise or fall in stock prices. Stock prices more often than not, never climb up or fall down linearly. Here, we will find out how not only to protect your business in a volatile stock market, but also to profit from the volatility itself. You should always try to know how to protect your business in a volatile stock market.
Back to basics
Before we discuss on the steps to protect ourselves for stock market volatility, it is important to understand who and when does this volatility really affect. Here’s the catch! Remember,
Volatility predominantly affects the short-term or “active” traders not only adversely but also favourably!
For short-term traders, volatility can be either a boon or a bane, depending on how vigilant and quick-acting they are. A successful active trader always looks forward to capitalize on this volatility. A sudden rise in stock prices will mean that the active trader will immediately be able to sell his stocks at a higher price and make a profit. Similarly a quick fall also means that he incurs a quick loss. At the same time, a quick fall also provides him an opportunity to buy shares at a much lower price than before. So basically, it all depends on the active trader to use the volatility to his advantage.
Long-term traders can rejoice in the fact that though volatility in the stock market affects them on a day-to-day basis, they always have time to recover. They can do this simply by waiting for the market to climb back up and stabilize.
Again, the worst –affected victims of share market volatility are the small business owners. But they are also the most likely to recover from it if they follow the following strategies.
- Never over-stock commodities: There is always a chance that commodity prices fall as soon as you have bought a consignment. Hence, never over-stock any commodity. If a price-fall is imminent, come up with offers and clear up your existing stock.
- Use the Price-protection option: Many well-established manufacturers offer price protection on their commodities. This serves as a guarantee for the small business owner that even if he has to sell his goods at a price lower than his cost price, he will always be reimbursed by the manufacturer.
- Collect all out-standings receivable. Hire a collection- agency if you cannot do the collections yourself. Even big corporations do this trick and it pays off!
- Reshuffle your workforce: When business is low, you may not be able to utilize your workforce to their full potential. Your business will soon look overstaffed. To avoid getting into such a situation, cross train your staff. Cross-training will not only make it easier for you to manage your work in case of absenteeism or retrenchment, but will also make your work force better skilled and prepare them to be eligible for promotions. But lay people off only if absolutely necessary – who knows you may need them again pretty soon!
- Cut your production: It would be foolish to invest more money in acquiring more raw materials for production when you have not cleared up your old stock of finished goods yet.
- Sort out your inventory: Getting rid of obsolete commodities in your inventory will pay off in the near future. You must understand that though once upon a time such goods might have cost you a fortune, they are at present worthless. You are already running a loss if you are keeping them. You are doing much better if you are selling them for whatever price you are able to get for them. By doing so, you are actually making a profit because any price is bigger than worthless!
You now know how to protect your business in a volatile stock market. You have to keep in mind to make the best use of research in order to know which stocks would best suit for your requirement. You have to get some of your busy time to understand the market very well.
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