2024 US election: 6 ways to hedge election volatility

As the race for the White House heats up, we’re all left wondering who will take on that powerful role in the Oval Office.

With Republican nominee Donald Trump and Democratic challenger Kamala Harris neck and neck in the polls, this election is shaping up to be one of the most competitive and closely followed in US history.

You know how they say, "markets dislike uncertainty"? Well, that’s definitely true right now. While we can’t predict the outcome, one thing’s for sure: market volatility is here to stay. Experienced traders know that while volatility can be risky, it also opens up plenty of opportunities. Bigger price swings mean more chances to make a profit!

In this blog, we’ll dive into why US elections create such a buzz in the markets, how you can take advantage of this volatility, and share some strategies to help you manage the risks that come with it. Let’s get started!

 

What is volatility?

In trading, you often hear the term "volatility," but what does it really mean?

Simply put, volatility is all about how much an asset's price can swing up and down in a short time. In high-volatility markets, you’ll see prices change quickly and trading volumes spike, which means there's a greater chance of big, unexpected price moves.

On the flip side, low-volatility markets are much steadier with fewer dramatic shifts. So, think of volatility as a way to gauge an asset's risk: higher volatility means higher risk, and lower volatility means more stability.

 

Why does the US election create volatility?

The US election really shakes things up for global markets and traders. The results can impact everything from US economic policies and tax rates to international trade deals and geopolitical stability.

With so much at stake, it’s no wonder that election periods bring about a lot of market volatility. When there’s no clear frontrunner, it just adds to the uncertainty, making it tough for markets to figure out the likely outcomes.
 
If we look back at the 2020 election, Donald Trump and Joe Biden were practically tied in the polls, which sent the VIX index—measuring expected volatility in the S&P 500—soaring by 44% just before the election.

After Biden won, it plummeted by 46%. And it's not just the S&P 500 that feels the effects; you can expect some serious price swings in USD pairs, US stocks, and other financial instruments as we get closer to the election.

 

How to navigate election volatility

History shows that things tend to get a bit volatile before elections, and it looks like we're seeing that again this time. So, with that in mind, let’s chat about some handy tips to help you navigate this election period and maybe even turn that volatility to your advantage!

 

1. Set goals 

If you’re trading election volatility, it’s important to think about what you want to achieve. A good way to do this is to set yourself ‘SMART’ goals – i.e. goals that are Specific, Measurable, Attainable, Relevant and Time-Bound.
 
For example, your goal could be to increase your portfolio’s value by 10% before the election result on 5th November. Or if you’re looking longer term, you could aim to make $3,000 profit by the end of 2024.
 
Each trader will have an individual goal in mind, so there’s no need to get competitive. Just pick something that’s right for your knowledge, experience and circumstance.

 

2. Have a plan

When it comes to trading during election volatility, it’s super important to clarify what you want to achieve. You can think about:

• What markets you want to trade: Are you focusing on FX, indices, stocks, gold or oil? You’ll want to consider where you see the best opportunities, but also whether you have right market knowledge to trade them effectively. Don’t miss our guide to 3 markets to trade during the 2024 US election.

• Your risk-reward ratio: How much are you willing to risk losing on a trade? Equally, how much profit do you need to justify the risk? If you’re unsure, a 1:3 ratio is usually a good starting point.

• Your timeframe: Are you planning to capture short-term market movements or looking longer term?

• Who you think will win: If you have a view on the eventual outcome, this will help you position your portfolio effectively. For example, a Trump win is likely to be positive for the US dollar, big tech stocks and gold, but negative for green energy and healthcare stocks. A Harris win is expected to provide a boost for defence and green energy stocks, but weigh on the US dollar, finance stocks and crypto.

 

3. Stay informed

Staying in the loop about the latest election news is super important for navigating market shifts.

Our team of dedicated analysts provides daily updates, insights, and commentary to keep you ready for trading opportunities and aware of potential risks.

With our experience, we’re here to help you make smart decisions and grab onto financial success!

You can find our latest US election news and analysis on the Alpari website and social channels, or even sign up to receive daily market updates straight to your inbox.

 

Managing your risk around the election

Volatility can actually create some great opportunities, but remember, every chance comes with its own risks. When things get a bit shaky, managing those risks becomes super important.

Here are some easy strategies to help you keep your exposure low and handle your risk like a pro.

1. Diversification 

Have you ever heard the saying, “Don’t put all your eggs in one basket”? It really rings true, especially when it comes to trading! Diversification is key. It means spreading your investments across different asset classes to avoid being too reliant on any single one.

For example, if your portfolio only has gold, your success rides solely on how gold performs in the market. But if you mix things up with gold, oil, foreign exchange, stocks, and indices, you can cushion the blow if gold takes a sudden dip.

And don't stop there! Think about diversifying within each asset class, too. Holding stocks from different sectors can give you an extra layer of protection. We're here to help you make informed trading decisions as you work towards your financial goals,

 

2. Stop-loss orders 

A stop-loss order is a handy tool for traders and investors to help manage risk. Basically, it’s a way to tell your broker to close a losing trade once the price hits a certain level.

For example, if you buy EUR/USD and set a stop-loss 30 points below, your position will close automatically if the pair drops that much, keeping your loss in check.

On the flip side, take-profit orders work the other way. If you buy EUR/USD and set a take-profit order 30 points above, your position will close automatically when the pair rises by that amount, locking in your profits.

Using these strategies can really help you navigate the trading world with more confidence and open doors to financial success.

 

3. Hedging

One great way to reduce the risk around the US election is by hedging. Basically, this means setting up positions that will make money if some of your other investments start to drop in value. For example, you could:

Look to “safe-havens”

Safe-haven assets like gold and the Swiss franc tend to move inversely to the US dollar, enabling you to hedge against USD risk. 

Short US stocks

If uncertainty starts to weigh on equity prices, you could short US indices or individual US stocks to hedge against a general downside move. 

Invest in non-US assets

Focus on markets less sensitive to the election outcome. We offer a wide range of global indices and stocks, as well as minor and exotic currency pairs.

 

4. Control your emotions

Traders have a ton of strategies they can use to reach their goals. But let’s be real—true success usually comes from having a clear, systematic approach, not just going with your gut.

When the markets get volatile, it’s easy to let emotions take over, whether that means chasing quick profits, trying to recover losses, or taking on too much risk.

That’s why staying disciplined is so important. Keep your cool, stick to your trading plan, and stay consistent.

 

Final thoughts

You know, history tells us that US elections and market ups and downs go hand in hand. When there's no clear favorite, it creates a lot of uncertainty that can stir up market nerves.

For traders, this election-related volatility can be a mixed bag of opportunities and challenges. Sure, it can open the door to some great trading chances and potential profits, but it also makes things a bit riskier, which means you need to stay on your toes.

By getting a handle on this volatility and using smart strategies to protect your portfolio, you can really make the most of the situation. We're here to help you navigate these ups and downs, so you can take advantage of everything the market has to offer.