Volatility
A measure of how much and how quickly prices change, indicating market uncertainty and risk.
Volatility measures how much an asset's price moves over a period. High volatility means bigger swings in both directions - more opportunity, and more risk.
Volatility measures the degree of price variation over time. High volatility means large, rapid price swings; low volatility means stable, slow-moving prices. It's a key factor in risk assessment, option pricing, and position sizing. Volatility is measured with standard deviation, the ATR indicator, or implied volatility like the VIX, and it clusters: calm markets stay calm until they do not. For traders it sets the stop distance, the position size, and the realistic profit target.
How It Works
- Measured by standard deviation of returns
- VIX index measures S&P 500 volatility
- ATR (Average True Range) measures daily volatility
- Higher volatility = higher risk and opportunity
Types of Volatility
Historical Volatility
Based on past price movements
Implied Volatility
Expected future volatility from options
Realized Volatility
Actual volatility that occurred
Trading Tips
Reduce position size in high volatility
Spreads widen during volatile periods
News events spike volatility
Related Terms
Sources
- CBOEVIX, the market's fear gauge
- InvestopediaVolatility defined
Put Your Knowledge Into Practice
Compare regulated brokers and find the best one for your trading style.