9 years ago investing71Jake

Profit From Bear Market – Credit Default Swaps

In the end of 2007 and the beginning of 2008 a stock market crash all over the world ate up to 25% investment capital.

Bear Market Lucky you, if you didn’t have stocks or mutual funds at that time. There was similar crash in September 2001. There will be similar crashes in the future.

Stocks And Mutual Funds Work Better In Bullish Market

Some stock traders do well with short trading, but the truth is in most cases it’s all about good times for the markets. In the last few years many stock traders and mutual funds in East Europe achieved outrageous returns of 100% of more per year.

“Those are damn good traders and managers!”

Yeah, sure. If the markets were not raising all the times you would never see such figures. The crash in 2007-2008 proved it. The best performing mutual fund in Bulgaria for example lost more than the stock market down. They weren’t good, they were simply riding the wave until it was good.

Traditional investing methods don’t work well in bear markets.

Credit Default Swaps Are Exactly For Bear Markets

If you wonder what exactly this is and like to read complex financial explanations, go check Wikipedia’s page on credit default swaps. If you are lazy like me, here is a simple explanation:

Credit Default Swap (CDS) is a contract between two market players (parts). The first party pays fixed fees for a given period. The other party pays only if a credit even like bankruptcy or debt restructuring happens. Even simpler and shorter, when the market falls you want to be the first party. You want to be the one who paid fixed fee during given time to protect someone’s risk.

These who owned CDS at the end of 2007 made a good buck.

When, Where And How To Buy Credit Default Swaps

Actually the answers to where and how are pretty simple. Go at your local bank or trusted financial institution and ask them about CDS. They will be happy to provide you with full instructions and contacts.

When is always a very important question in investing. The prices of the CDS are most attractive when the risk is lowest. The risk is considered lowest when the market has been rising for long time and no one expects crashes. Except us, the sharks.

How and when to catch the exact moment? If someone claims to know that, he or she is simply lying. I definitely don’t know that myself, but I know tips to guess it with a good chance for success. They are not a subject of this article however.