Trading glossary
Volatility measures how much and how quickly an asset's price fluctuates over time. Learn what drives it and how it is measured, explained neutrally.
Volatility captures the size and speed of price fluctuations over time. An asset whose price swings widely from day to day is described as high volatility, while one that moves in a narrow range is low volatility. It reflects the degree of variation in price, not the direction of movement.
Volatility is commonly quantified using the standard deviation of returns over a period, though other measures exist. Historical volatility looks at past price movement, while implied volatility, derived from options prices, reflects expectations about future movement. Both are numerical summaries and are stated with respect to a specific timeframe.
Volatility helps describe the character of a market and how much prices are moving. Higher volatility means larger and faster swings, which can mean both larger potential gains and larger potential losses, so it is closely tied to risk. Volatility changes over time and does not indicate which way prices will move.
Higher volatility means larger and faster price swings, which is generally associated with greater risk because prices can move sharply in either direction. It describes the size of movement, not the direction, and it is not a prediction.
Historical volatility measures how much price actually moved in the past, while implied volatility is derived from options prices and reflects the market's expectation of future movement. Both are estimates tied to a specific timeframe.