Learn how price fluctuations impact your trading decisions and portfolio performance
Volatility is a statistical measure of the dispersion of returns for a given security or market index. It quantifies the amount of uncertainty or risk related to the size of changes in a security's value. Higher volatility indicates that a security's price can change dramatically over short time periods.
Assets with high volatility experience significant price swings, creating both opportunities and risks for traders.
These assets tend to have more stable, predictable price movements with lower risk but also lower potential returns.
Higher volatility creates more trading opportunities for short-term strategies that profit from price movements.
Understanding volatility helps set appropriate stop-loss levels and position sizes for effective risk control.
Volatility is a key input in options pricing models, with higher volatility increasing option premiums.
Volatility is commonly measured using standard deviation of returns. The VIX (Volatility Index) is a popular real-time measure that reflects the market's expectation of 30-day volatility.