What is volatility?

Get to know this important market force


Volatility in actuality, is simply an extreme fluctuation. A fluctuation which moves present enhanced opportunities… and risk. Because of short and long trading, online investors can potentially profit from any price change – even when volatility is driving prices down. This is why any volatility, even a market crisis, can be viewed as an opportunity.

For solid “put-my-money-down-and-forget-about-it” investors, volatility is bad news. They’d like their assets to move in a single direction – up. But for day traders, who see daily movements as opportunities. Market movements, small or extreme can open the door enjoy both sides of field.

If you leverage your investment, you have to pay close attention to high volatility, since even the smallest market move will take it tool on your margin. But confining your risks with well-placed limit orders to stop loss and take profit, is just like rigging the game, since you can limit how mush volatility will affect your portfolio. Adding Negative Balance Protection to the equation assures you can never lose more that you can afford.

What causes volatility? There are numerous factors that can influence the market, both causing and fueling volatility. Volatility can exist within the global economy, a single market or even a single instrument. It can be a long-lasting phenomenon, going on for weeks and months, or a matter of hours or minutes. So the definition of volatility depends on your point of view. A good starting point would be financial news outlets and a good economic calendar, the latter listing events that have higher potential to cause volatility, based on past events.

As we’ve outlined in the previous paragraph, there are many factors with the power to move the market. If you are new to the world of trading, you may think it’s a bit odd that a single event can have such a substantial impact, but when you’re dealing with major political or economic changes, global markets react, and fast. Want a few examples? Read our full educational article here.


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