Volatility Trading: What is it?

Volatility Trading: What is it?

Volatility in trading has been one of the things that has received a negative view in the world of investing. However, it is not that bad as it seems. It is actually the statistical measurement of price fluctuation of a certain asset over a specific time period. Volatility Trading also serve as an alternative in investing.

While it does have a realistic notoriety, knowing what its functions can give you an edge over with your investments.

In further details, Volatility uses standard deviation or variance between returns to measure a certain security. As a natural feature, once volatility becomes bigger, the riskier it gets.

In another definition, Volatility measures the changes in the value of a certain asset. This means that the security will be more open to price changes if it becomes more volatile.

More so, a lower signal could indicate steady movements. This means that the chances of having price changes is lower.

Volatility Trading

Trading with Volatility is quite possible. A lot of traders engage in volatility trading because of the features it has. Basically, volatility trading uses the the changes in price rather than the price itself.

Prevalence in Option Trading

Additionally, volatility trading is more practiced in options trading. Option Trading are affected by a lot of factors. But mostly, volatility factors it more. If you want to experience this kind of trading, you may want to go try options trading as a first. Because here, you will have more ease as it is one of features of the trading alternative.

Volatility is actually a useful factor in trading. You can use it to measure the value and add the data to your overall decisions.

Also, you can use Implied volatility in option trading. This is the quick measurement on the value of an option. More so, it is very similar to Historical Volatility. You can easily determine whether an option is over or undervalued with the use of such.

Lastly, here are some of the known factors that affect volatility. They maybe a lot but everything should be considered when measuring it.

  • Central banks’ decisions
  • Interest rate changes
  • Major political events
  • Geopolitical factors
  • Extreme weather conditions
  • Natural disasters
  • Announcements or speeches by policy-makers
  • Change in taxation policies
  • Major impact on supply or demand
  • An acquisition or a merger

As you can see, most of these can affect any security. If you’re stuck with just one asset, the chances of losing is higher even if you know its volatility. If however you are in to trading and investing, you may want to diversify your portfolio to diminish risk. This is to up your chances in profiting than losing.

Knowing the volatility and risk within an asset can definitely help you with your trades. Volatility is not just a fluctuation but it is a measurement. This is why you should know more further about it as this is helpful to your investments.

Learn more about trading here in FSMSmart Reviews! Enhance your trading skills to the fullest. Join our community now.

Review Date
Reviewed Item
Author Rating

5 Replies to “Volatility Trading: What is it?”

Leave a Reply

%d bloggers like this: