Volatility
A measure of how much and how quickly prices change, indicating market uncertainty and risk.
Definition
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.
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
1
Reduce position size in high volatility
2
Spreads widen during volatile periods
3
News events spike volatility
Related Terms
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